Expert Guide

Setting up a limited company for buy-to-let property investment

What is a property investment company?

What exactly is a limited company? What does running a company involve and why do so many property investors choose them?

Need a limited company setting up? Use our Company Start-Up Service to get a tax-smart limited company tailored to your property investment goals from just £59.

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What is a limited company?

In a nutshell, a limited company is a legal entity that’s separate from you as an individual or as a shareholder/director.

The company is allowed to make contracts and is liable in its own right for any business debts, so your personal assets are safe from being attached to your company. Limited companies must file accounts and a confirmation statement each year with Companies House, and a Corporation Tax return with HMRC every year.

What's the difference between personal and limited company owned property?

When you’re investing in property, you can either buy it personally or through a limited company, also called a property investment company or SPV.

Personally owned

When you buy a property personally, the deeds are in your name, the mortgage is in your name and you personally pay income tax on rental profits.

Limited company owned

When you buy through a limited company, you own the company. The company then buys the properties, the mortgages are in the company's name and the company pays corporation tax on rental profits.

What is a special purpose vehicle (SPV)?

A special purpose vehicle (SPV) is simply a regular limited company which is used solely for a particular purpose. In the case of property investment, it's used to purchase and rent out properties. If you have another business (perhaps contracting or consulting) it's recommended that you don't combine this with your rental properties - it can complicate getting a mortgage. Lenders prefer properties to be held inside a separate SPV, set up for this purpose.

Why do landlords invest using a limited company?

A key reason many property investors prefer to purchase properties in a limited company is due to the flexibility a limited company offers. This includes things like: claiming mortgage interest, better taxation rates for higher rate earners, paying into a tax efficient pension or building profit within the company for future investment.

One of the top reasons for many is mortgage interest relief, also known as Section 24.

If you personally own a buy-to-let property, you’ll be impacted by Section 24, which increases the amount of tax you pay on your rental income. Previously landlords could claim the full amount of mortgage interest - and a limited company still can - which is why many investors find a limited company more tax efficient, particularly if they pay the higher or additional rate of income tax.

Our Intro to Property Tax Guide looks at the specific tax differences between limited companies and personally owned property in more detail.

Running a limited company

It’s important to understand the responsibilities of being a director, particularly when it comes to the additional time and cost involved with running a company.

  • As a director of a limited company, you’ll be required to keep accurate financial records, and submit your company’s annual accounts and corporation tax return.

  • You’ll also need to submit the appropriate annual forms to Companies House and HMRC.

For personally held portfolios, many landlords are confident in submitting tax returns themselves. Limited company accounts are far more complicated and many landlords use an accountant to support them.

The importance of correct company structure

When setting up or incorporating a limited company, you - or your accountant - will register your company at Companies House. This is a fairly straightforward process, however there are a few property specific things to be aware of, which we’ll cover later in this guide.

  • During the setup process, you’ll add yourself (and perhaps your spouse or business partner) as a director.

  • You’ll need to choose a SIC code (Standard Industrial Classification) to define your company’s business activities. It’s really important to choose the right SIC code for your property company if you’re planning to get a BTL mortgage.

  • You can also assign shares to multiple people, including children, allowing them to be paid a percentage of the profits in dividends.

We cover different tax efficient share structures in more detail in chapter 3.

Structuring your company correctly to align with your investment goals is really important and we’d always recommend getting property tax advice from an expert. It’s realistic that most property portfolios will be worth seven figure sums, so it’s essential to make sure that your company foundations are right and you don’t have tax issues in the future.

Once your company is set up, you can open a business bank account, apply for a buy-to-let mortgage and buy property through your limited company.

Start up with Provestor

Whenever you’re ready, here are 4 ways we can help you start and manage your buy-to-let limited company:

  • Tax Advice. Talk through your options and increase your confidence by booking a tax consultation with our Chartered Property Tax Advisors.

  • Company Start Up. For a smooth start and to avoid costly mistakes, our expert team can incorporate your limited company, for less than you think.

  • Accounting Tax App. Keep on top of your finances in minutes, and prepare and directly submit your accounts and tax returns, with our easy-to-use property accounting app, designed specifically for landlords.

  • Advisory Service. As your portfolio expands, the complexity of your financial needs grows too. Provestor’s Advisory Service is the next step for investors seeking a deeper level of support and tax expertise.

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