Is it appropriate for all landlords?

In a word, no. The costs involved with incorporating can be excessive for landlords with a limited portfolio, while increased workloads, responsibilities and expenditure can be onerous for those who proceed.

Transferring, or ‘selling’, existing properties into a limited company can dramatically increase your tax liability in the short term. There is no capital gains allowance on houses that have increased in value since purchase, so it is likely that this will have to be paid unless you can show that the property is run as a ‘business’ (See below). In addition, any ‘purchase’ will be subject to the 3% stamp duty hike on second properties introduced in 2016, irrespective of your company status. Properties must be sold at the current market value, so duty fees alone on multiple purchases could outweigh the benefits of incorporating.

Capital gains allowance is worked out according to whether a property is classified as part of a ‘business’ or as an ‘investment’. In order to show that a property is run as a ‘business’, landlords will need to take greater responsibility for day to day maintenance and tenant management work. If they are currently employing a letting agent to shoulder the burden or working at another job, then the property will probably be classed as an ‘investment’ and the allowance will be lost. Given the costs involved with capital gains, this could (again) make the difference between maintaining profitability or running a deficit.

As a company director you will be obliged to complete and return an annual returns and filing accounts statement to HMRC. This can equate to a great deal of paperwork, so it may be necessary to employ the services of an accountant, thereby eating further into profits.

You will have to pay income tax and class 1 National Insurance Contributions on all declared income. Profits (which belong to the company) are disbursed as taxable dividends, so you may be liable to dividend tax if you withdraw money from the company.

Some lenders are unwilling to transfer existing individual buy to let mortgages to a company account. If they refuse to do so, you may be forced to remortgage the property, potentially incurring exit fees, arrangement fees and legal costs.

However, costs for limited companies are usually higher than for an individual. Broker and solicitor fees are charged at a higher rate, for example, due to increased workloads and legal complications, while mortgage lenders’ arrangement fees are also higher (around 1-1.5%).

Many lenders do not offer limited company mortgages.