Here at the BTLPlatform, we not only offer buy-to-let property listings custom-built for investors, but we also connect those investors with the best SPV limited company mortgage deals for their needs.

If you’ve never heard of them before, an SPV limited company can be used to hold buy-to-let properties for you; in other words, incorporating your property investment activities as a legal business entity.

But what advantages do they offer? Why should you use a limited company instead of buying in your own name? Here’s why…

Mortgage interest tax relief

It used to be the case that independent landlords could offset 100% of their mortgage interest costs from their tax bill - but no longer. 

You do get a 20% tax credit instead as a consolation prize, but that’s it. It makes earning a profit as an independent landlord even tougher, and many property investors have chosen to sell up and leave the market due to this change alone. 

But when you hold properties inside a limited company, you instantly regain that 100% mortgage interest tax relief; which is great news for your tax bill. 

And it’s not the only tax advantage that limited companies can offer…

Lower corporation tax rates

Most individuals in the UK - including independent property investors - are charged income tax on the income we make each year.

However, the rates that we pay can vary significantly from one person to another. That’s because income tax is charged in different bands, like so:

• 0% on the first £12,570
• 20% on the next £37,700; the ‘basic rate’
• 40% on the next £74,870; the ‘higher rate’
• 45% on anything above £125,140; the ‘additional rate’

If your income pushes you into the higher rate or even additional rate band, you’ll be left with a pretty hefty tax bill to cover. 

And remember, income tax is charged on your entire income for the year; so if you’re doing property investment as a side hustle alongside your day job, it’s quite possible that the combined income will push you into the higher rate bracket.

In contrast, limited company investors pay corporation tax on their property income. Corporation tax rates have changed slightly from 2023, but the short version is:

• If your limited company earns £50,000 or less, you pay 19%; the ‘small profits rate’
• If it earns £250,000 or more, you pay 25%; the ‘main rate’
• If it earns between £50,000 and £250,000, you pay 25% minus a ‘marginal relief’; namely 3/200 of the difference between the upper £250,000 limit and the limited company’s income.

This means for higher rate taxpayers (and especially additional rate taxpayers), incorporating your property investment activities can represent a huge tax saving.

Retained earnings

Unfortunately, you will have to pay tax on the money you extract from the limited company as salary/dividends.

But this also reveals another advantage of buying through a limited company. The money you make from your investments can be stored within the company as retained earnings (aka retained profits), where they won’t be taxed any further beyond corporation tax. 

These retained earnings can then be reinvested into new property acquisitions, or to build a safety net to weather any lulls in the property market.

Tax-efficient succession planning

What will you do with your property portfolio after you’ve gone?

Most investors choose to pass on their investments to their children in their will; but this will land them with a bill for inheritance tax (IHT).

So, pass them on to your children before you die and you’ll be fine, right? 

Well, no. You’ll still encounter capital gains tax (CGT) based on the amount the property would have sold for, charged at 28% for residential properties; and if any one property is still under a mortgage, you might have to deal with stamp duty too. 

Plus, if you happen to pass on yourself within seven years of passing on your properties, they’ll still be hit with the inheritance tax.

Things are different if you hold your portfolio in a limited company. That’s because, instead of transferring the properties themselves, you can simply transfer shares in the limited company to your children.

If you price those shares at zero, you’ll avoid any stamp duty; and as long as you do it before you pass on, there’s no IHT to pay.

CGT may still be owed, but the CGT on shares is charged at a maximum of 20%; a big saving over the 28% charged on independent property transfers.

So there you have it; four big reasons to choose limited company incorporation for your buy-to-let investment business.

The BTLPlatform can connect you with the very best limited company mortgage deals from across the lender market. Sign up now, input your mortgage preferences and see how much you could borrow today.