Company vs individual: What’s best for my new landlord business?

by | Jul 18, 2023

If done well, becoming a landlord can be a profitable and rewarding path to follow.

But before you start looking for your first buy-to-let property and vetting potential tenants, you have to decide on your business structure.

You can choose whether to incorporate your business or work as a private landlord. But which is better?

Pros of incorporating

Setting up a limited company allows you to purchase property and keep it under the name of your company, providing some distance between your personal liabilities and those of your business.

As a limited company, you’ll also have several tax advantages a private landlord will not. You’ll pay corporation tax on your profits, rather than income tax.

Corporation tax rates are lower than the higher and additional income tax rates of 40% and 45%. If your property company makes £50,000 or less a year, you’ll only pay 19% on your profits. For company profits up to and over £250,000 a year, you’ll pay 25%, with any profits between £50,000 and £250,000 reduced at a tapered rate through marginal relief.

As the director of a company, you can pay yourself in a tax-efficient way, through a combination of salary and dividends.

You’ll also benefit from the ability to claim relief on your property finance costs, such as mortgage interest. This relief used to be available to individual landlords but was reduced between 2017 and 2020, and replaced with a basic-rate tax credit.

You can read a full summary of property taxes for buy-to-let landlords in our previous blog post.

Cons of incorporating

When you incorporate, you’re adding to what could already be a heavy admin workload. Registering with Companies House requires a fair amount of paperwork, as well as a registration fee. You will also have to register for a company tax return and submit annual statements.

As you’ll be on a public register, certain personal information will be available for all to see, so if privacy is a concern, running a limited company may not be your best option.

An important factor to consider is that if you already own a rental property and want to incorporate, you’ll need to sell this to your company in order to transfer ownership. This could come with a substantial stamp duty charge.

Acting as a private landlord

If you work as a self-employed private landlord, you are your business. There is little to no separation between you and your properties. This means you’re fully liable for any losses or debts the business incurs. If something goes wrong at the property, like a burst boiler, you’ll have to be the point of contact and sort everything out.

Your profits will also be subject to income tax, and the more you earn from your business, the more you’ll pay. If you sell a house, you’ll also pay capital gains tax which can be as high as 28% on residential property, but you will have an annual tax-free allowance.

A major benefit of being a private landlord over running a limited company is the simplicity of your tax process. Being self-employed means you’ll file a self-assessment tax return every year. This is far simpler than a corporation tax return. You can also lower your bill by claiming any allowable expenses, such as:

  • marketing costs
  • accountancy charges
  • fees for repairs and replacements
  • council tax and utility bills.

What’s best for me?

There are several advantages and disadvantages to both options. Incorporating or acting as a private landlord isn’t as straightforward a decision as you might think.

That’s why you should consult an accounting firm that works closely with landlords and understand the niche aspects of the sector.

If you need advice on setting up your property rental business, get in touch.

You deserve more

When you start seeing results, you’ll have more time to focus on what matters most. That’s the joy of a great partnership.