Tax Advice
The first question we always ask a client when they ask about limited company buy to lets is whether they have spoken with their accountant or tax advisers? We are only mortgage advisers and are not qualified to give tax advice to clients. Limited companies can be more cost effective in certain scenarios and here at FFP we can explain the pros and cons of operating through a limited company, but the final decision needs to be made by you and your accountant. Typically, if you are a higher or additional rate taxpayer and have several buy to let properties then it might be worth running your property business through a limited company.
SPV (Special Purpose Vehicle) or Trading Business
The vast majority of limited company buy to let lenders prefer the company to be an SPV, set up specifically for the letting and operating of own or leased real estate. In instance such as this the limited company should have one or more of the following SIC codes – 68100, 68209, 68320 & 68201.
However, it is also possible to have a limited company buy to let through an existing trading company as opposed to a company specifically incorporated for the letting of real estate. There aren’t as many options available for a trading company limited buy to let but it is still possible.
Moving a Portfolio to a Limited Company
Again, this is a decision that you need to make along with your accountant or tax adviser. We cannot advise you on the benefits of shifting properties that are currently owned personally into a limited company. However, if you do go down this route then you will have to sell the property to the limited company and therefore you will incur stamp duty and possible capital gains tax.
There will also be extra setting up costs such as higher lender fees, valuation fees and conveyancing costs. And if you are currently tied in with your current lender there may be ERCs (Early Repayment Charges) to take account of. As you can see moving your property to a limited company can incur major costs and can be a big commitment.
Whether it’s a good move to make the switch in the long term depends on how much your portfolio is worth, how long would wish to retain the portfolio for and whether you will need to draw any profit out of the company.
