Incorporating a buy-to-let business

by | Aug 5, 2019 | Blog

Landlords are caught in the headlights of HMRC as tax changes continue to bite, prompting many to review their business structure. 

Since 2010, policy changes have affected buy-to-let landlords, stamp duty, lending criteria on buy-to-let mortgages, and growth in the build-to-rent sector.

Research from Precise Mortgages earlier this year showed 64% of landlords with four or more properties were using limited company status for new purchases.

Hot on the heels of our successful property-related seminar on 11 June 2019, we take a look at when it makes sense to incorporate a buy-to-let business. 

Retain mortgage interest relief

Frank and Jan have 15 residential properties, each valued between £150,000 and £400,000. 

Frank is a tradesman and owns five of the properties, Jan owns another five homes and does the books, while the couple jointly own the other five properties. 

The total value of their buy-to-let property portfolio is £4 million, and the total annual costs they incur amount to £1m. 

They began losing mortgage interest relief in April 2017, when tax relief on mortgage interest began to be phased out at a rate of 25% a year.

By April 2020, they will not be able to deduct any of their mortgage expenses from rental income to reduce their tax bill if they retain their existing business structure.

Incorporating their buy-to-let business would make sense as the phasing out of mortgage interest relief does not extend to limited companies. 

Benefits of incorporating a business

If we could prove that Frank and Jan are both in partnership and in business together, they could substantially reduce their tax bill by incorporating, while not being charged any additional tax. 

Incorporating would enable their new company to issue shares, which can bring the property portfolio from the old business into the new company. 

As incorporating their business would see them qualify for incorporation relief, they would save £840,000 in capital gains tax on their £3m profit.

Transferring their partnership property portfolio to their limited company would also save them £169,995 in stamp duty relief. 

Speak to the experts

Before deciding whether or not to incorporate your business, contact one of our experts to fully understand the pros and cons. 

Dunkley’s recognise one size does not necessarily fit all when it comes to the buy-to-let sector, and that different business structures suit different scenarios.

This blog outlines one of many solutions that may or may not help you overcome the challenges faced by your property business. 

Director Mike Dunkley has a wealth of experience in advising buy-to-let landlords and is happy to answer any of your questions.  

To find out more about what Dunkley’s has to offer, call 01454 619900 or email us at 

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If there’s anything you’d like to know about Dunkley’s, we’d love to hear from you.