Property Management Companies
Property Management Companies
More than 50% investment properties in the UK are now purchased via limited companies, also known as ‘Special Purpose Vehicles’ or SPVs.
What is a limited company?
A limited company is an entity in its own right, and legally separate from you as an individual, it can buy assets and have liabilities (e.g. mortgage) in its own right and you will own shares in the company.
Why Buy to Let through a Limited Company?
The simple answer is: Tax Savings
Tax on rental income of personally owned property is at your normal rate (e.g. basic 20%, higher 40% or additional 45%). You can’t claim your mortgage interest as an expense on personally owned properties. Instead, you now receive a basic rate (20%) reduction from your tax liability for any mortgage interest payments and other financing costs. This is bad news for higher rate tax payers as it will mean you have more tax to pay.
Tax on properties owned via limited companies is quite different, and far more flexible, the entire mortgage interest payment is tax allowable and will also reduce the profit, thus decreasing the amount of tax due. You then pay corporation tax rather than income tax on the profits, which is currently 19%. If you keep the profit inside the company (perhaps to save for another property) then there’s no more tax to pay.
