Should I invest in my personal name or LTD company?
Posted on 27th June 2023 at 14:39
When buying a buy to Let property there are two ways to purchase the property, either personally or via a Ltd company.
You’re probably wondering what are the differences? And which method is the right one for you?
Which method you choose will mainly come down to your own personal tax situation and your future plans. Here are a few reasons why you would choose each method…
Personal Name Buy to Let
A personal buy to let involves buying an additional property to rent out in your own name. So just like your main residential home you are the legal owner of the property.
The advantage of this method from a mortgage aspect is you are likely to get a cheaper interest rate as there are more lenders available to choose from. This means your monthly mortgage payments will be cheaper dependant on which mortgage type you decide to take either interest only or repayment.
The lender will require the same documents needed for a regular residential purchase.
This option is often used when you decide to rent out a previous home you once lived in (Let to buy), or you don’t intend to build a property portfolio and may want to use this single investment property as an extra source of income or a retirement fund to support your pension.
For tax purposes this method is recommend for a person with a salary of £50,000 a year or less. As you will pay income tax based on your salary threshold which is currently 20% for below £50,000.
Unfortunately if you hold BTL property in your own name you cannot claim this back as a business expense so all rent you receive will be taxed at your normal rate. So if you are a higher rate tax payer you would pay 40% on all rent received, not the profit.
Ltd Company Buy to Let
A Ltd company buy to let involves buying an additional property to rent out in a specialist company’s format which is called a SPV (Special Purpose Vehicle) which is designed for buying and selling property which you will be the company director of.
The advantage of this method is as you begin to buy more investment properties the lenders available will offer specific mortgage deals to you as you become a portfolio landlord. (Four buy to let’s or more).
The lender will require more documentation for your application as you will need company documents and personal documentation as you are two separate entities.
This option is often used when you do intend to build a property portfolio due to tax purposes and your salary is over £50,000 a year. As a result of this method, you will pay corporation tax at the required threshold and potentially dividends tax too.
Stamp duty still applies for both methods at the additional rates when purchasing. Whereas if you sell the property in the future. You will pay CGT (Capital Gains tax) if a personal buy to let and be able to use your annual capital gains allowance or corporation tax at the appropriate tax threshold if a Ltd company buy to let, where you have no allowance.
If you would like more information on both these mortgage options, please don’t hesitate to contact the team.
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