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Buy-to-let: How to Set Up as a Company

8th August 2017

Buying property (either commercial or residential) has always been considered a rather easy and relatively safe long-term investment. With more and more people expanding their property portfolios, isn’t it time you fulfilled your Monopoly empire dreams?

Purchasing a property to let out has numerous advantages. With the rental market on the increase – particularly in South West London, an additional property can provide you with regular additional income in the form of rent. Then, of course, there’s the capital growth that comes from buying a property likely to appreciate in value.

A buy-to-let mortgage assesses both your potential rental income and your personal income. And, because the cost can be spread across several properties, it is often a more accessible first step on the property ladder. But the buy-to-let mortgage is not without its drawbacks. Several recent changes are set to adversely affect the buy-to-let investor’s profits.

Additional stamp duty and a forecast from the Council of Mortgage Lenders (CML) of reduced buy-to-let lending for 2018 paint a dismal picture. Changes to tax relief, expected to be fully phased in by 2020, are forcing landlords to further revaluate their expected returns.

There is one silver lining, however. Landlords purchasing through a limited company are exempt from these changes. Which begs the question, just how viable is it set up your own company? To help you make your decision, here are some things you should take into consideration:

 

1. Weigh up the financial implications

You will need to pay to set up a limited company, file annual tax returns, pay to submit your forms and perhaps even pay an accountant to help. While there are many costs associated with a limited company, landlords with a large collection of property tend to find that the tax benefits associated with a limited company, outweigh these costs – and the higher cost of mortgage borrowing.

 

2. Aim for a portfolio of at least four

Higher interest rates mean that some investors may prefer to remain as individuals. But for those looking to grow a portfolio, setting up a limited company makes good financial sense. The point at which the tax benefits begin to outweigh the costs is thought to be four properties.

 

3. Start as a limited company

Selling privately owned properties in order to reacquire them as a limited company may seem like a nifty way to get around the problem. But in reality, you’ll just wind up incurring more capital gains tax. If you want a portfolio of properties, set up a limited company from the start.

 

4. Get your documents organised

You will need a set of articles of association, a shareholder’s agreement and an agency agreement if you plan to appoint a commercial agent. It’s important to get all this organised from the very start.

 

5. Understand your statutory obligations

Setting up a business comes with a number of statutory obligations. The company must be registered in the UK, all accounts must be filed with the Companies House and an annual return comprising details about any shareholders and officers must be made every year. Running your own company is time consuming, and not for everyone.

 

To help you decide if setting up a limited company could be the right option for you, talk to IMC today. We would love to hear from you.

Tel: 020 3761 6942
Fax: 020 8392 6112
Email: info@imcfs.co.uk

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