Should you set up a limited company for buy-to-let properties?
As mortgage interest relief was finally phased out in 2020 and replaced by a tax credit, based on 20% of mortgage interest payments, buy-to-let landlords are increasingly considering whether to set up a limited company to hold their investment properties.
Holding them in a limited company will mean that they are assessed for tax differently, including being able to claim full mortgage interest tax relief. It is a complicated decision that requires detailed analysis to assess the most efficient way of holding property.
Ultimately, the decision will be guided by:
- How long you intend to own the property
- The likely amount of capital gains generated, if the property is going to be disposed of at a future date
- Your own income tax position
- Whether you rely on the income generated or wish to roll up the income for further investment
If you already have buy-to-let properties held personally, there is further consideration as they will need to be transferred from your personal ownership into a limited company. This can trigger additional Capital Gains Tax, Stamp Duty Land Tax, legal fees and re-mortgage fees. Reliefs may be available but if not and unless you intend to hold these properties as a long-term investment, these costs are likely to make the transfer cost prohibited. Here are your options for owning buy to let property.