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Limited vs personal: How should I buy my buy-to-let property?

Post-it notes with Buy to let written on one and houses drawn on the others

Investing in buy-to-let properties can be a fantastic way to build wealth and generate income. However, one of the first crucial decisions you'll face is how to hold the property: in your personal name or through a limited company? Both options come with advantages and disadvantages, and the best choice depends on your individual circumstances. 

Here at Prestige Private Finance, an independent mortgage brokerage in the UK, we understand the complexities of buy-to-let financing, particularly from a mortgage perspective. This comprehensive guide will explore the key differences between owning a buy-to-let property personally and through a limited company, helping you make an informed decision for your investment strategy in 2024. 

Personal Ownership: Simplicity and Lower Upfront Costs 

Owning a buy-to-let property in your personal name is the simpler option. There's no need to set up a separate legal entity, which saves on initial costs like company registration fees. 

Tax Implications

(Please note: We are not tax specialists. This section provides a general overview. We highly recommend consulting with a qualified tax advisor for specific tax advice)** 

Income Tax: Rental income is declared on your personal tax return and taxed at your marginal income tax rate. This can be higher than the corporation tax rate for limited companies (currently 19% in the UK as of April 2024). 

Capital Gains Tax (CGT): When you sell the property, any profit is subject to Capital Gains Tax. However, you benefit from a tax-free allowance (currently £12,350 for the 2023/24 tax year). 

Pros of Personal Ownership

Simpler administration: Less paperwork and accounting compared to a limited company. 

Potentially lower upfront costs: You avoid company formation fees. 

Access to a wider range of buy-to-let mortgages: Personal buy-to-let mortgages often have lower interest rates and fees compared to limited company buy-to-let mortgages. 

Cons of Personal Ownership

Unlimited liability: You are personally liable for any debts or legal issues related to the property. 

Higher income tax on rental profits: Rental income is taxed at your marginal income tax rate, which can be higher than corporation tax. 

Limited growth potential: Expanding your buy-to-let portfolio becomes more complex with personal ownership. 

Limited Company Ownership: Tax Advantages and Future Growth Potential 

Owning a buy-to-let property through a limited company offers distinct advantages, particularly for long-term investors looking to build a sizeable portfolio. 

Tax Implications

 (Please note: We are not tax specialists. This section provides a general overview. We highly recommend consulting with a qualified tax advisor for specific tax advice)** 

Corporation Tax: Profits from the rental income are subject to corporation tax (currently 19% in the UK as of April 2024). This can be lower than your marginal income tax rate. 

Mortgage Interest Relief: Unlike personal ownership, limited companies can offset all mortgage interest against rental income before calculating corporation tax. This can significantly reduce your tax bill. 

Capital Gains Tax (CGT): When the limited company sells the property, any profit is subject to corporation tax (19%) on disposal. However, there are potential ways to minimise this through business asset disposal relief (BADR). 

Pros of Limited Company Ownership

Limited liability: The company's liability is limited to its assets, protecting your personal finances. 

Tax benefits: Potential for lower corporation tax on profits and offsetting mortgage interest. 

Growth potential: Easier to build a larger buy-to-let portfolio under a single company structure. 

Succession planning: Transferring ownership of the company can be easier than transferring individual properties. 

Cons of Limited Company Ownership

Increased administration: More complex accounting and filing requirements compared to personal ownership. 

Higher upfront costs: Company formation fees and ongoing accounting fees. 

Limited access to buy-to-let mortgages: Fewer lenders offer limited company buy-to-let mortgages, and they may have higher interest rates and fees. 

A table showing pros and cons of personal and company Buy-to-let options

Choosing the Right Option for You 

The best choice between personal and limited company ownership depends on your individual circumstances. Here are some key factors to consider from a mortgage perspective: 

Number of properties

If you plan to build a large buy-to-let portfolio, a limited company may offer better tax advantages in the long run. However, securing financing for a limited company with no track record can be challenging. 

Current income tax rate 

If you are in a high marginal income tax bracket, a limited company can help you reduce your tax burden on rental profits. However, you'll also need to consider the additional tax implications of extracting profits from the limited company, such as salary and dividends. 

Interest rate environment

Compare the interest rates on personal and limited company buy-to-let mortgages. The potential tax benefits of a limited company might be offset by higher mortgage interest rates. 

Seeking Professional Advice 

For a comprehensive understanding of the tax implications of personal vs. limited company ownership for buy-to-let investments, we highly recommend consulting with a qualified tax advisor. They can assess your specific circumstances and advise on the most tax-efficient structure for your portfolio. 

Prestige Private Finance Can Help With Your Buy-to-Let Property Choices

At Prestige Private Finance, our expert mortgage brokers can guide you through the intricacies of buy-to-let financing, including navigating the different mortgage options available for personal and limited company ownership. We can connect you with the most competitive buy-to-let mortgage deals, regardless of the ownership structure you choose. 

Contact us today for a free, no-obligation consultation and let's discuss the best financing strategy for your buy-to-let goals! 

Prestige Private Finance recommends you seek expert tax advice on buy-to-let property ownership structures before making financial decisions. 

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