What is the best way to purchase a Buy-to-let property?

buy-to-letTo stop Buy-to-let investors pushing up prices, tax relief is being phased out and landlords’ costs are going up sharply. The new rules make Buy-to-let less financially rewarding and were designed to take the heat out of the property market.

The tax changes only apply if you hold property in your own name. Some landlords are using limited companies to buy property, and in some cases even buying it from themselves to pay less tax long-term.

But as usual with tax, things can be complicated. You might escape from some tax liabilities by becoming a corporate investor, but you may run in to several new ones. 

Corporation tax

Annual net rental income, including the full deduction of allowable finance costs, would be charged at 19% (falling to 17% from April 2020). This compares to up to 45% income tax on net rental income from property held personally. This might make a company worthwhile.

An individual would effectively pay a higher rate of tax despite there being no difference in receipts and expenses. But the other taxes might negate any savings.

Capital Gains Tax (CGT)

Selling a buy to let property and buying it back it through a limited company means a capital gain if the value of the property has risen since its original purchase.

CGT can be levied at either 18% for a basic rate tax payer and 28% for a higher rate tax payer.

If you were to run a real rental business with multiple properties you might be able to avoid this by claiming incorporation relief.  The taxman would look very closely at whether you have any other income, and if he decides your business only exists to avoid tax, he would probably take a dim view of any such claims.

Stamp Duty Land Tax (SDLT)

Stamp duty is also payable on the re-purchase by the company – and since April this year all Buy-to-let purchases are subject to pay a 3% surcharge. SDLT is payable on the market value and could be anything up to 15%. This figure would also be too high make it worth starting up a business –  although, if at least six properties are being transferred, lower non-residential rates of SDLT would apply.

Taking a profit – and being hit by dividend tax

In a company, the rental income, after corporation tax would belong to the company. The shareholder would need to take it out as profit. This is no longer as easy as it once was. From 6 April 2018, only the first £2,000 of dividends have been tax-free, with anything above this amount liable to income tax at 7.5%, 32.5% or 38.1% depending on your personal tax rate.

There are ways to avoid this tax by the use of loans, but they can mean walking a tightrope when you set up the company, with any misstep leading to costly disaster.

Other headaches

Tax might be enough to scupper any plans to launch a company, but it is not the only issue to consider. You will need to run the company, which will mean formal accounts and the administrative costs. You also need to consider whether your mortgage lender will allow your existing mortgage to be transferred to a company.

If you are considering what to do with buy to let property, you need professional advice. At Continuum, we would be pleased to provide it.

Your home may be at risk if you do not keep up repayments on a mortgage or other loan secured on it.

The Financial Conduct Authority does not regulate some aspects of Buy-to-Let mortgages.

Levels and basis of reliefs from taxation are subject to change and depend upon your personal circumstances.

Get in touch

If you would like to discuss further please call us on 0345 643 0770, email us at [email protected] or click on the ‘Contact Us’ link below. Thank you.


gov.uk – Rates and allowances: Corporation Tax – April 2018

gov.uk – Rates for Capital Gains Tax – June 2018

gov.uk – Tax on Dividends

Book a Meeting

If you want to get a free consultation without any obligations, fill in the form below and we'll get in touch with you.

    Sign-up to our free weekly online publication

    How can we help you?
    Scan the code