Costly limited company mistakes for property investors to avoid
4 out of 5 buy-to-let properties are now bought via limited companies, driven by rising interest rates and the mortgage tax relief gained by using a company. However, the rush to incorporate is leading to a ticking time bomb of tax and legal problems from poorly considered 'DIY' company incorporations.
In this free guide, we'll reveal the tax mistakes landlords are making, how you can avoid them.
↓ Scroll down now and start reading
Costly limited company mistakes for property investors to avoid
4 out of 5 buy-to-let properties are now bought via limited companies, driven by rising interest rates and the mortgage tax relief gained by using a company. However, the rush to incorporate is leading to a ticking time bomb of tax and legal problems from poorly considered 'DIY' company incorporations.
In this free guide, we'll reveal the tax mistakes landlords are making, how you can avoid them.
↓ Scroll down now and start reading
About this guide
In this guide, we’ll reveal the precise mistakes property investors are making when starting limited companies, the impact of these issues, and tips on how you can avoid them.
What you'll learn
Common mistakes investors make with company structures
How to save thousands in tax by planning for the future
How to invest most effectively with your spouse or business partner, and the difference it makes in hard cash
Why it matters to use the right shareholder percentages and classes, and the importance of issuing the right share values
How to avoid setting up an unmortgageable company, leaving you stranded without finance
How to spot shady firms marketing risky tax evasion schemes, with costly consequences for you
Plus, at the end of this guide you'll find a checklist and the steps you should take to maximise the success of your new limited company.
The limited company tax trap
As the impact of section 24 hits investors' tax bills, rising interest rates are compounding a profitability problem. That's why more and more investors are buying property through a limited company (rather than in their personal name) in a bid to ensure their investment is viable.
Analysis of Companies House data by Provestor show that 40% of newly formed property investment companies have gone down the 'DIY' route, applying for a company formation themselves. They're using a basic company structure (a single share class) and the default incorporation documents (also know as "the model articles").
Setting up a company is quick, easy and cheap. For just £12, you can start your own limited company with Companies House and you're ready to buy a property. Simple, right?
Within the property buying cycle, it’s easy to understand why investors take this approach. The window between offering and completing on a property creates a metaphorical cliff edge, and the pressure is on to get a company set up pronto. In just 15 minutes you can start your company, meaning you can set up a bank account and get your funds in place to secure your purchase.
But this rush to incorporate is causing many investors to fall into an easily avoidable, but potentially costly tax trap.
The costly mistakes investors are making
In our comprehensive study of limited companies started by property investors, we have identified three key trends when it comes to tax:
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Missing out on personal tax optimisations and significantly overpaying tax
Using the wrong share structure for their strategy, which can have legal implications
Incorrect or missing documents, resulting in unmortgageable companies or risking an investigation from HMRC
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