Sole trader to Limited Company: What are the benefits for landlords

In recent years, there has been a trend of landlords choosing to run their businesses through a limited company rather than as sole traders.

This is because operating as a limited company offers significant tax efficiencies and provides a degree of protection to landlords’ personal assets thanks to the limited liability offered by incorporation.

What impact does being a limited company have on property tax?

Tax relief is one of the biggest drivers for landlords to consider becoming a limited company, structuring your business as a limited company offers significant advantages compared to being a sole trader.

There are lower rates of tax on rental profits, as sole traders pay personal income tax on rental properties, whereas limited companies pay Corporation Tax on profits this typically ranges from 19 per cent to 25 per cent, which is often substantially lower than personal rates.

Landlords operating under a limited company may also be able to take a small salary and can take dividends which are taxed at lower rates than personal income.

This strategy is often more tax efficient as landlords aren’t taxed on full rental profits. Being a Limited company can provide mortgage interest relief options as well, as mortgage interest is fully deductible.

Compound growth is a key advantage for limited landlords, they can retain profits for new properties, refurbishment or debt repayment.

Strategic advantages of being a limited landlord

Incorporation is much more than a tax decision. It is a strategic plan for landlords that offers long term benefits.

Companies can issue shares to rise investment, which in turn strengthens borrowing capacity and reinforce professional credibility.

The Inheritance Tax benefits of being a limited landlord means that property can allow for transfer via shares making succession easier, while also making the business eligible for Business Property Relief of up to £2.5 million.

Is being a limited company landlord right for me?

While being a limited company landlord is right for some, it is not always right for all, so it is important to speak to an accountant before you decide to make the jump.

One key issue that many overlook is the cost of incorporating an existing portfolio into a limited company. This transaction is subject to Stamp Duty Land Tax and can, therefore, generate a considerable bill.

However, incorporation is typically beneficial for: