Buying to let as a limited company rather than an individual changes the stamp duty and other taxes you pay and also changes how you calculate your profit.

buy to let as a limited company

Buy to let as a limited company

Since our accountant talked to us about using a limited company for buy to let properties instead of buying them as individuals, we had to go back to the beginning of our research list.

We looked up every topic and worked through every rough calculation again. We needed to understand what the differences and similarities are.

Stamp duty

The SDLT surcharge will generally apply to additional property being purchased by limited companies. It’s not really that much different to the calculations for personal purchase SDLT.

The thing to watch out for is Annual Tax on Enveloped Dwellings (ATED) which is an annual tax payable by companies that on UK residential property valued at more than £500,000. You may be able to claim relief if the property is let to a third party on a commercial basis – i.e. buy to let.

Tax

All those mortgage relief restrictions don’t apply to limited companies. Corporation tax is only 20% so that changes the profit calculation.

Rental Income£15,000
Mortgage Payments£7,852.20
=Taxable Profit£7,174.50
Corporation Tax Due£1,429.50
Net Profit£5,718

Even if we take of the cost of buildings insurance and put 10% aside for repairs that is still £3,918 profit.

Can it make a profit?

The big question is can it make a profit?

Of course if we draw money out of the company we’ll still have to pay 40% tax on that as higher rate tax payers. It makes more sense to leave the money in there and let it stack up to be the deposit on another property.

In the medium term, we’ll get more properties while paying less tax. If we decide to reduce our day jobs to take us back to being basic rate tax payers, then drawing money out of the company won’t change our finances.

The long term benefit of increasing equity value because the house price has gone up is still there. By long term we mean 10 years to 18 years, not 3 to 5 years.

Buy to let as a limited company
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