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#TaxTuesday: Week 2 – The pros and cons investing through a company

April 11, 2017Article by Paul Avery

Happy #TaxTuesday!

At the end of last year Kent Reliance revealed that in the first three months of 2016, six out of ten buy-to-let mortgage applications were made through limited companies. In the second quarter, the proportion jumped to six in ten.

This week we look at why investors are increasingly choosing to harness the mysterious powers of the LLC – the pros, cons, and why companies are taxed differently in the first place.

Why hold property assets in a limited company?

Incorporating provides more flexibility and security for investors, as well as the potential for reduced tax liabilities.

Profits from rental income and capital appreciation can be retained in the company, putting investors in control of how much tax to pay, and when. Incorporating also affords a degree of personal protection from the corporate structure in the event of financial or legal problems.

When it comes to the taxes listed above, the one relative certainty is that mortgage interest payments will be entirely tax-deductible. Additionally, in the best-case scenario, tax on rental income will be lower (and could well drop in future), capital gains tax can be reduced, and stamp duty may even be avoidable for companies with large portfolios.

However, most landlords will only be able to reap some of these benefits, and each of them must be considered separately.

What are the downsides?

Incorporating involves a fair amount of additional administration and time if it is to be done right. To maximise profitability, it is important that the asset gains and revenue remain in the company until they can be withdrawn in ways that do not incur extra charges. That will not work for every kind of investor’s circumstances, but it is worth finding out.

Can I still get a mortgage?


It is true that mortgage products targeted at limited companies are historically less easy to acquire, and high street lenders will often balk at the suggestion. They are also generally less attractive than personal home loans – especially in comparison with today’s low rates.

However, specialist brokers do offer a range of options that is now broadening to cater for increased demand driven by recent regulatory changes. As well as becoming more readily available, the terms are becoming more favourable and competitive all the time.

Why are companies taxed less heavily than individuals?

The cynical answer is that companies have more leverage to lobby for tax advantages from the government. However, such concessions are often given freely with a view to supporting the wider economy. The current government has a particular interest in attracting and keeping business in the UK, and may lower corporation tax further in pursuit of a post-Brexit competitive edge.

Next week we get down to the nitty-gritty of what the incorporation process involves for old and new portfolios.


Disclaimer: tax advice is never one-size-fits-all. The government takes all circumstances and applications on a case by case basis, and so should investors. For help assessing your individual situation, seek bespoke advice from qualified experts.

We partnered with tax expert James Hume of Steel Tax London to create this series. Steel Tax can be reached at 020 3291 1943, or through their website: http://www.steeltax.london. If you have any questions for us about the contents of #TaxTuesdays, feel free to drop me a line at pavery@propertyfrontiers.com.


Paul Avery

Paul joined us in 2016 to lead our in-house research efforts, producing reports and guidance for clients as well as the strategic market analysis behind our new project launches. His background is in sustainability in the construction sector, and he is currently being trained in property valuation to further bulk up his investment creds.
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