As a landlord, these are the five main points of setting up a limited company
Limited companies pay corporation tax, not income tax.
Corporation tax will drop to 17% in 2020, while private landlords face income tax of up to 40% for higher-rate taxpayers. Limited companies pay tax on profits, not income, so are treated differently to individual landlords. Mortgage interest payments remain tax-deductible.
Limited company landlords may access larger loans
The changes to underwriting criteria for landlords have affected affordability calculations. It is not uncommon for them to request rent to typically cover up to 145% of interest payments for private landlords. The Prudential Regulation Authority’s changes did not affect portfolios managed in limited companies; typical rental cover has remained at 125%.
You can receive dividends at a lower tax rate
Through a limited company, you can receive £2,000 of company dividends yearly, tax-free. Thereafter, beyond your personal allowance, dividends are taxed at 7.5% until income crosses the threshold for higher-rate taxpayers. After this, the rate rises to 32.5%, and 38.1% for additional-rate taxpayers.
Grow your portfolio
Since limited company profits are not exposed to income tax while retained within the business, the structure allows for more capital to be used to build portfolios or refurbish existing properties.
Getting a loan should not come at a premium
Today, limited companies are well-served by the choice of products on offer and should not have to pay a premium to access finance.
If you would like to know more about a new or re-mortgage please do make contact and one of our independent advisers will be happy to assist.