Running a buy to let business as a limited company

Running a buy to let business as a limited company

14:42 PM, 26th November 2010, About 12 years ago 18

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Running a buy to let business as a limited companyBuy to let landlords making big rental profits and looking to save tax often flirt with the idea of running their business through a limited company.

The main benefit is a company can be a tax-effective way of managing income.

Profits within the company are taxed at lower rates than top rate income tax and shareholders can manipulate their personal income by declaring dividends at just below the top rate threshold.

For the current tax year that means a full time landlord and his non-working wife could draw £43,875 each from a company before either pays 40% tax.

One of the problems is transferring buy to let properties in to a company.

Assuming a husband and wife own 10 buy to let properties valued at £1.6 million, on the transfer they have to consider capital gains and stamp duty implications.

If a business was to transfer a trading property, like a shop, workshop, or factory in to a company, the property owner could apply incorporation relief to negate the capital gains tax element because the business is a going concern.

Residential property owners cannot benefit from incorporation relief because tax law says although business rules underline how a property investment is taxed, it’s still an investment and as such is not a going concern.

Case law supports this view – judges have held that even if landlords work full-time managing their properties, even though the activity comes close to a business, it does not quite hit the mark.

So, transferring a property portfolio in to a company will incur capital gains tax if a gain has been made.

Then comes stamp duty. Expect a hefty bill of 5% of the portfolio value as the transfer is considered a linked transaction and stamp duty is charged at the highest rate on the total value of the portfolio.

And having done away with about a third of the value of the portfolio in tax, do not forget the legal fees involved in the transfer plus hefty mortgage arrangement fees and legal costs that can run to 3%+ of the borrowing as well.

Some accountants and lawyers will argue that claiming incorporation relief on a residential portfolio transfer is not tested in law – which it is not.

The problem is HM Revenue and Customs will only take a look at the matter after the transfer when the deal is too late to unravel – and those same tax advisers will want £10,000 or more of your money in barrister’s fees to seek a legal opinion to defend your position.

If you want to make legal history and have money to burn, then you could open the door for many landlords to follow in your footsteps – or you could waste hundreds of thousands of pounds.

If income tax on rental profits is an issue, we have plenty of proven methods for you to reduce it. If you need to sell you need to take advice, especially if your property(ies) have increased in value since you purchased them. If you want to access your capital gains you may not even need to sell.

Before you make any choices it’s important to know what choices you have to make.


21:43 PM, 8th February 2013, About 10 years ago

Can you hold some of your properties as an individual and some of them as a company??Once you become a higher rate tax payer it may make sense to place any further properties in a company as the tax rate is just 20% up to £300k..Just leave any existing properties that you own as an individual where they are so you do not give rise to cgt charges.Setting up a company will not give a tax advantage if you want to use the income to fund your life style as the dividends are taxed at 25% ie you pay corporation tax at 20% and then a further 25% on the dividends if you take money out of the company.It only makes sense to use a company if you have no intention of withdrawing the income from the company every year.

Mark Alexander - Founder of Property118 View Profile

23:47 PM, 8th February 2013, About 10 years ago

Hi Bill

Yes you can have both a company and personal holdings. I've never seen much point in using a company to hold rental property for the long term though. Same reasons as you have stated plus companies don't have CGT allowances and they never die so CGT will be payable eventually.

Matthew James

21:01 PM, 27th February 2013, About 10 years ago

Interesting thread!

I'm very keen to start up a BTL portfolio as we have cash for deposits and good equity in the flat. I very keen to get off on the right footing though which is why I need to understand more about limited business options.

We have 1 BTL flat, so if we started a limited co. based on purchases from here on, they would be safe from the CGT and other issues mentioned?

Then, If I signed our current BTL over to my wife so she could use all of her threshold leading up to 40% that would be less tax to pay on that as well?


Mark Alexander - Founder of Property118 View Profile

21:06 PM, 27th February 2013, About 10 years ago

Hi Matt

It's well worth taking professional tax advice if you plan to build a property portfolio. Please see >>>

23:18 PM, 27th February 2013, About 10 years ago

Hi Matt,

It is pointless putting properties in a company if you or your wife are paying tax at the lower rate.If you transfer a property to your wife so she pays tax on the proft at the lower rate that would be a good move.

For CGT purposes you might want to consider puting the property in joint names when you come to sell it as then you can use up 2 lots of cgt allowances.

So to summarise if you are a higher rate tax payer, I would transfer the property to your wife so the income is taxed at the lower rate.Then when you decide to sell the property, transfer it into joint names to get 2 cgt allowances.

There is a book by Carl Bayley called Using a Property Company To Save Tax. It is very comprehensive and can be downloaded from the internet.A good website for tax is You can get free tax advice on this website.


14:14 PM, 22nd November 2014, About 8 years ago

Reply to the comment left by " " at "27/02/2013 - 23:18":

How can it be transferred to the wife without incurring SDLT.?


23:56 PM, 21st August 2018, About 4 years ago

Hi there
I buy 1 property as residential but I rented it. Now I’m on the process to buy another property. I’m plannng to take equity from my previous property and buy another one and planning to BLT both property. But I’m afraid that I have to pay higher tax as my primary job earn 30k. I got wife and parents all staying with me and who doesn’t work. What is the best strategy for me so that I can make profit and have to pay less tax.

Neil Patterson View Profile

8:22 AM, 22nd August 2018, About 4 years ago

Dear Samir, I would suggest you consider booking a Tax Consultation with Mark Alexander fro our Tax Planning page >> This page also contains a massive resource of information, case studies, related articles, video and downloads for Landlords.

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