Investing in property through a limited company is no longer a niche strategy—it’s the standard. With over 40,000 buy-to-let companies set up in the first quarter of 2022 alone, it’s clear that this trend is growing rapidly. But forming and managing a buy-to-let (BTL) limited company isn’t as straightforward as it seems. The key to unlocking the full potential of your investment lies in getting the setup right.
Why Use a Limited Company for BTL:
- Tax efficiencies: Deduct mortgage interest, lower corporation tax rates.
- Improved estate and inheritance planning.
- Easier to buy and sell property, and limit personal liability.
Tax Advantages of Limited Companies:
- Lower capital gains tax (10–20% compared to 18–28% for personal ownership).
- Corporation tax on profits is lower than personal income tax rates (up to 45%).
- Stamp Duty Land Tax (SDLT) savings when transferring ownership via shares instead of direct property sale
Market Share of Limited Companies:
- 50% of UK buy-to-let (BTL) purchases were made through limited companies in 2021, up from 10% in 2015.
- Over 300,000 active property holding companies in the UK.
- Half of these were set up within the last three years
At Portico Invest, we specialize in streamlining this process for landlords. Here’s a breakdown of the essentials for setting up your BTL limited company effectively, which we can assist you with:
1. The Building Blocks of Your Company
- SIC Code (68209): Ensure your company is classified as a property-holding business to attract mortgage lenders.
- Business Bank Account: A dedicated account helps lenders, consolidates finances, and simplifies management.
- Registered Office Address: Protect your privacy by avoiding using your home address. Portico Invest provides secure UK-based office addresses.
2. Shareholders, Directors, and Structure
- Shareholders and Directors: Clearly define roles early on to avoid legal complications later. A simple structure—ordinary shares for equal voting rights—works best.
- Digital Management: Portico Invest’s platform makes it easy to add or remove shareholders, ensuring seamless compliance.
3. Essential Legal Documents
- Memorandum and Articles of Association: Tailored to reflect your company’s BTL purpose.
- Director Loan Agreements: Extract funds tax-efficiently using zero-interest director loans.
- Shareholders’ Agreement: A vital tool to protect your rights, especially in partnerships or family investments.
Financial Benefits:
- Example Investment (Property value: £500,000, gross rent: £20,000/year, sold after 5 years):
- Post-Tax Profit:
- Personal ownership: £32,239.
- Limited company ownership (selling property): £39,173 (+22% higher)
- Post-Tax Profit:
- Tax Savings:
- Capital Gains Tax (CGT):
- Personal ownership: 18%–28%.
- Limited company: 10%–20%.
- Stamp Duty Land Tax (SDLT):
- Personal ownership: Payable on the property.
- Limited company: No SDLT if transferring shares
- Deductible mortgage interest under a company structure
- Capital Gains Tax (CGT):
Costs for Limited Company Setup:
- One-Time Setup Fee:
- UK residents: £149.
- Non-UK residents: £579.
- Subscription Fees:
- £21.98/month per company, including accounting, tax returns, secretarial services, and registered office
By choosing Portico Invest, you gain access to an all-in-one solution designed to simplify every aspect of setting up and managing your buy-to-let company. From initial formation to ongoing compliance, our solutions save you time, money, and stress.
