Pros and Cons of Using a Limited Company for Buy-to-Let

If you're a landlord considering the best way to structure your property investments, you may be wondering whether using a limited company for buy-to-let is the right move. This approach has become increasingly popular, especially among higher-rate taxpayers and landlords with growing portfolios.

Using a limited company for buy-to-let can save tax and protect assets, but may involve more paperwork, limited lender options and higher mortgage costs.

In this guide, we'll walk you through the pros and cons of using a limited company for buy-to-let, so you can make an informed decision for your property portfolio.

Need help deciding if a limited company is right for your buy-to-let? Call our expert mortgage advisors on 020 3813 7800 for a free, no-obligation consultation.

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What Is a Limited Company Buy-to-Let Mortgage?

A limited company buy-to-let mortgage is a type of mortgage specifically designed for landlords who want to purchase or remortgage rental property through a limited company, often a Special Purpose Vehicle (SPV).

This structure is becoming increasingly popular among landlords, especially in London, due to potential tax benefits, better portfolio management, and liability protection.

Advantages of Using a Limited Company for Buy-to-Let

If you're a landlord looking to grow your property portfolio, buying through a limited company can offer some attractive advantages. While it may not be right for everyone, many investors are now turning to this structure for better tax efficiency, asset protection, and long-term planning.

Here are some of the main benefits of using a limited company for buy-to-let:

1. Tax Efficiency

Unlike personal income, which is taxed up to 45%, profits in a limited company are taxed at the corporation tax rate (currently around 19% or lower, depending on profits).

Limited companies can still deduct the full amount of mortgage interest before calculating tax, something individual landlords can no longer do in full.

2. Limited Liability Protection

Your personal assets are separate from the business. If your rental business encounters financial difficulties, your own home or savings aren't automatically at risk.

3. Flexible Income Options

You can choose how to take money from the company, as a salary, dividends, or a combination, which can help with tax planning.

4. Portfolio Growth Made Easier

Profits can be retained within the company to reinvest in new properties, ideal for landlords looking to expand without drawing income each year.

5. Simplified Inheritance Planning

Transferring shares in a limited company can be easier than transferring property title deeds, making long-term estate planning more straightforward.

6. Clear Separation of Finances

Running your portfolio through a company keeps your business finances separate from your personal money, helping with accounting, budgeting, and financial clarity.

If you're planning to invest in multiple rental properties or fall into a higher income tax bracket, using a limited company could be a smart move. However, always seek advice from a specialist mortgage broker or tax advisor before deciding.

Disadvantages of Limited Company Buy-to-Let

While buying rental property through a limited company can offer tax perks and protection, it's not the perfect solution for everyone. There are some key disadvantages to consider before setting up a company for your buy-to-let investments.

Here are the main drawbacks of using a limited company for buy-to-let:

1. Higher Mortgage Rates

Mortgages for limited companies often come with slightly higher interest rates than those offered to individual landlords. Plus, not all lenders offer them, so your options may be more limited.

2. More Admin Work

Running a limited company means more paperwork, including annual accounts, company tax returns, and compliance with HMRC and Companies House.

3. Increased Costs

You'll likely need an accountant to help manage your company's finances, which adds to your ongoing expenses. Setting up the company itself may also involve initial legal or registration fees.

4. Fewer Lenders Available

Not every mortgage lender offers buy-to-let products for limited companies, so you might have to work harder (or use a broker) to find the right deal.

5. Public Records

Your company's financial details are made public via Companies House, which some landlords prefer to keep private.

Is It Worth Setting Up a Limited Company for Buy-to-Let?

That depends on your situation. If you're a higher-rate taxpayer, planning to grow a large property portfolio, or want to reinvest profits, a limited company might be a smart move. But if you're only buying one or two properties, the added costs and admin might outweigh the benefits.

Tip: Always speak to a qualified mortgage advisor and tax professional before making the decision.

Is Using a Limited Company for Buy-to-Let Right for You?

Choosing whether to buy a rental property through a limited company depends on your individual circumstances. It's often a good option for:

• Higher-rate taxpayers looking for tax efficiency
• Landlords planning to build or manage larger property portfolios
• Investors wanting to protect personal assets from property liabilities

However, if you're a first-time landlord or plan to hold just one or two properties, the extra costs and administration might outweigh the benefits.

Final Thoughts

Using a limited company for buy-to-let property can be a smart strategy, especially if you're a higher-rate taxpayer, plan to reinvest profits, or want to build a portfolio over time. But it's not a one-size-fits-all solution.

Before making any decisions, it's a good idea to:

• Speak to an accountant who understands property tax planning.
• Consult with a specialist mortgage broker for limited company buy-to-let options.
• Consider both your short-term goals and long-term financial plans.

Should Landlords Use a Broker for Limited Company Buy-to-Let Mortgages?

Yes, using a mortgage broker can make the process of getting a limited company buy-to-let mortgage much easier, especially if you're new to property investing or dealing with complex financial situations. A broker understands lender criteria, helps find deals suited to your company structure, and saves you time and hassle.

Key Reasons to Use a Broker:

• Access to more deals: Some lenders only work with brokers.
• Expert guidance: They know which lenders accept limited companies and SPVs.
• Save time: They handle the paperwork and application process.
• Tailored advice: Brokers match you with lenders based on your goals and circumstances.
• Avoid mistakes: They help prevent costly errors that could delay or derail your application.

Using a broker isn't essential, but for many landlords, it's a smart move.

Need Expert Advice?

Looking for guidance tailored to your situation? Call Infinite Finance London on 020 3813 7800 for a free consultation with one of our experienced buy-to-let mortgage brokers. We'll help you understand your options and make the right choice for your property investments.