Before deciding on whether to acquire properties as an individual or as a limited company, there are a number of issues to be taken into consideration, such as Buy To Let mortgage rates, CGT, distribution of rental profits, risks, and more. Long term plans are assumed to be renting, however, if you do decide to sell the property’s CGT may arise which are:
If you already have an investment portfolio, you will have potential tax liabilities as you need to consider the total tax liabilities from previous years. If we assume that the investment income for the year in which renting commences amounts to £30k as previously, the total tax liability for that year increases to 5 times the current tax liability. To be more precise, if we assume that rental income, based on your calculations, is nearly £60,000 = 12*(£1800 + £1600 + £1600), then the total tax liability will be £30,737.20 compared to the 2017-2018 tax liability of £5,837.20 2.1. If the properties are acquired through a limited company, and rental profits are distributed as salary, then the total tax liability is the same, as if acquired as an individual due to income tax. 2.2. If the properties are acquired through a limited company, and rental profits are distributed as dividends, then the total tax liability is lower than the options above due to dividend allowance of £2,000 in 2018-2019. 2.3. If the profit is retained in the Ltd company for future investments without distributions, no taxes will be due until you decide to withdraw, taxes will depend on the preferred type of distribution and the amount. 3. Since you will require a Buy To Let mortgage, it is more favourable to acquire through a limited company, as mortgage payments can be deducted as a regular business expense, which lowers the rental profit for tax purposes, even though mortgage rates for companies are higher:3.1. For companies - interest rates should be the same as for individuals, however, 100% of interest payments can be written off as an expense, lowering the taxable income. 3.2. For individuals - interest rate should be the same as for companies, however, in 2018-2019 only 50% will be deductible, in 2019-2020 only 25% will be deductible, an from 2020-2021 the rates will probably be around 2-3%It is also important to note that any second property purchased by an individual will attract a Stamp Duty Land Tax of 3%, which is not given for companies buying multiple properties. Based on the calculations and explanations above it seems like acquiring properties through a limited company, and distributing rental profits as dividends, is the option that creates the best tax savings, however, we should take into account the possible risks of properties being tied up/registered under the company's name. For example, if a company gets into financial or legal difficulties. So purchasing a property through a limited company is more beneficial, however, as mentioned before, long term plans should be considered.
