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Why purchase a buy-to-let property via a limited company?

Buying a buy-to-let property through a limited company has become increasingly popular in recent times. According to estate agent Hamptons, 74% of all buy-to-let purchases in 2023 have been made via a limited company, up from 68% last year and 41% in 2015.

This strategy can have certain advantages that may make it a preferred option for some investors. Some benefits of purchasing buy-to-let properties through a limited company can include:

Tax efficiency

One of the primary reasons for using a limited company is the potential for tax efficiency, especially if you’re a higher-rate taxpayer or multiple property owner. Rental profits on properties held in a limited company aren’t taxed at your personal tax rate but the current rate of corporation tax, which is lower than the higher rate of income tax.

Also, if you’re a higher-rate taxpayer wishing to expand your portfolio, you’ll benefit from tax savings using a limited company. You can retain your profits within the company to fund future purchases without them being subject to income tax (until you decide to draw the profits out of the company).

Limited liability protection

A limited company is a separate legal entity from its owners. This structure means the owner’s personal assets are protected from the company’s liabilities. If the property encounters financial difficulties or legal issues, the investors’ personal assets are generally shielded from the consequences.

Easier estate planning and transfer of ownership

Transferring ownership or planning the inheritance of assets can be more straightforward with a limited company. Shares in a company can be passed on to heirs more easily compared to transferring the ownership of individual properties.

Access to financing

Some lenders might offer more favourable lending terms for limited companies compared to individual investors. The benefits can include better interest rates and access to larger loans, making it easier to leverage the investment and expand the property portfolio.

Perception and professionalism

Operating through a limited company might give the impression of a more professional approach to property investment. It can also make it easier to manage multiple properties and present a more organised image to potential tenants or business partners.

However, there are also potential downsides to using a limited company for buy-to-let investments, such as additional administrative and legal requirements, the potential for higher initial costs and compliance obligations. It’s essential to consult with legal and financial advisers to understand the implications and benefits in your specific context before deciding whether this approach is suitable for your investment goals.

Why purchase a buy-to-let via a limited company

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