As legislation around landlord tax relief remains in flux, many buy-to-let landlords are choosing to set up their own company through which to manage their property(ies).
This can have a number of benefits, including:
Limited companies can still offset mortgage costs
There are potential tax credits and tax gains for limited companies
The finances for your company are separate from those as an individual
The downsides to this option are:
Legislation around limited companies and offsetting of mortgage costs could change at any time
Stamp duty, capital gains tax and other costs are potential deterrents
If you do choose to set up a limited company as a buy-to-let landlord, here’s what you need to do:
1) INFORM YOUR MORTGAGE PROVIDER OF YOUR PLANNED CHANGE OF CIRCUMSTANCES
Arguably the most important part of this process is to alert your mortgage provider to your planned change of circumstances. By setting up a company, you will change the terms of your mortgage and may need to reapply for a company mortgage, rather than a personal buy to let.
Seek advice from your mortgage provider to ensure you will be able to secure a realistic, workable mortgage as a company.
2) CHOOSE YOUR BUSINESS NAME
Every new business incorporated in the UK needs to be registered using a unique business name and an address.
Your business name should be unique and not registered by anyone else.
3) SELECT YOUR BUSINESS ADDRESS
Your business address should be one which you are happy to have on public record and to which the HMRC and Companies House can send official post.
Some landlords choose to use their own residential address for this, but there can be downsides to this, as putting your home address on public record could lead to spam/junk mail, unwanted visitors or simply people knowing where you live that you don’t want to know.
A popular option is therefore to use a virtual address. This needn’t be an address near you or even one which you visit yourself; instead, you simply choose an official address from a provider of address services. You can usually choose from various options, too, including:
Registered address
The minimum you need to register this address with Companies House, to which only official mail from Companies House and HMRC can be sent.
Mail forwarding services
Get an address with which to register your business, plus be able to have all mail sent here – ideal if you want to promote your business and need an address with which to do so.
Virtual address services
Get everything you get with a mail forwarding service with the additional benefit that all mail is scanned and emailed to you the same day. Ideal for international business and those who like to receive mail immediately, rather than waiting for Royal Mail post.
Services like these are available from as a little as £45 per year.
4) REGISTER YOUR BUSINESS WITH COMPANIES HOUSE AND HMRC
Registering with Companies House means adding your business to the register of businesses. This is a requirement for all businesses trading in the UK.
Registering with HMRC is where you register for tax. Again, this is a requirement for all businesses trading in the UK.
5) ENGAGE AN ACCOUNTANT OR HAVE PROVISIONS IN PLACE TO MANAGE YOUR BUSINESS ACCOUNTS
Managing your business accounts and ensuring they are delivered correctly to HMRC is very important. Many landlords entering into this new way of managing their properties may find that the paperwork and accounts side of things can be quite challenging.
Of course, this isn’t to say you won’t have the knowledge yourself already. But if it is something with which you’re not entirely comfortable, it’s worth engaging an accountant to help.
With the rise in landlords option to set up limited companies through which to manage their properties, accountants and mortgage lenders are setting up new services or adapting their existing offering specifically to help you.
As with all decisions which affect you or your business, it’s important you understand the full implications of setting up a company before you do so. We strongly recommend you seek advice from a qualified accountant and mortgage advisor before making your decision. To determine the profit opportunities from your investment you can also use a property investment calculator.
