Being a Limited company landlord has a number of benefits, but it's important to weigh up what is right for you and your circumstances. Here are some key facts for landlords to consider.
Limited company mortgages: Key facts
If you are thinking about purchasing a buy to let property as a limited company, here are some key facts to consider:
- Mortgage rates: Interest rates on limited company mortgages can be higher than standard buy to let products.
- Stamp Duty: Normally similar levels of Stamp Duty (Land and Buildings Transaction Tax in Scotland, or Land Transaction Tax in Wales) will apply.
- Tax Relief: Finance costs, including mortgage interest, remain tax deductible for limited company landlords.
- Corporation Tax: Limited company landlords pay Corporation Tax (not income tax) on their rental income. The current rate of Corporation Tax is 19%.
- Capital Gains: Limited company landlords pay Corporation Tax on their Capital Gains and there is no tax-free allowance. Lower rate taxpayers will pay 18% and higher rate taxpayers pay 28%. Please note, the gain can cross tax rates depending on your circumstances.
- Transfer of Property: By doing this you may have to pay Stamp Duty and Capital Gains Tax.
Getting professional tax advice will help you to find out the most appropriate structure for your circumstances.
Mortgages are secured on your property. You could lose your property if you do not keep up payments on your mortgage.
Example scenario for 2020/21
Here we compare limited company cashflow to personal owners in the basic and higher rate tax brackets. Visit the Government website for the latest information on Income Tax Rates.
In this scenario, a basic rate taxpayer is better off owning a buy to let property as an individual, but a higher rate taxpayer would get a greater return operating under a limited company.
If you scale this across a large portfolio and over a longer time frame, the financial impact could be even bigger.
|Cashflow types||Basic rate taxpayer||Higher rate taxpayer||Limited company|
|Gross monthly rent from buy to let property|
|Mortgage interest rate (example rate)|
|Monthly mortgage cost (with a £100k loan)|
|Income before tax deducted|
|Gross tax (before mortgage interest relief)|
|Mortgage interest relief|
These calculations are based on current tax rates. This example scenario is illustrative only.
The Mortgage interest relief is calculated at the basic rate of tax multiplied by the mortgage interest and other finance costs paid. The basic rate is currently 20%.
You can extract profit from a limited company in multiple ways, including dividends, salary, pension contribution and repayment of a director’s loan, if applicable.
This example scenario uses dividends to extract a net profit of £3,645.
Currently, each director is entitled to a yearly dividend allowance of £2,000 before they have to pay tax. After that, the profit is taxed at different rates depending on whether they are a basic, higher or an additional rate taxpayer.
|Extract flow||2 shareholders / directors||1 basic rate taxpayer
shareholder / director
|1 higher rate taxpayer
shareholder / director
|Value of dividend|
|Dividend tax rate|
|Dividend tax payable|
These calculations are based on current dividend allowance and dividend tax rates. This example scenario is illustrative only.
Our Limited Company mortgages
Visit our Limited Company mortgages page to find out more and see if you are eligible.