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Five things you should know about… setting up a limited company for a property portfolio

Setting up a limited company for a property portfolio

By Adrian Moloney, sales director at OneSavings Bank

Limited companies pay corporation, not income, tax

Corporation tax will drop to 17 per cent in 2020, while private landlords face income tax of up to 40 per cent for higher-rate taxpayers. Limited companies pay tax on profits, not income, so are treated differently to individual landlords. Mortgage interest payments remain tax-deductible.

Limited company landlords may access larger loans

The changes to underwriting criteria for landlords have affected affordability calculations. It is not uncommon for them to request rent to typically cover up to 145 per cent of interest payments for private landlords. The Prudential Regulation Authority’s changes did not affect portfolios managed in limited companies; typical rental cover has remained at 125 per cent.

You can receive dividends at a lower tax rate

Through a limited company, you can receive £2,000 of company dividends yearly, tax-free. Thereafter, beyond your personal allowance, dividends are taxed at 7.5 per cent until income crosses the threshold for higher-rate taxpayers. After this, the rate rises to 32.5 per cent, and 38.1 per cent for additional-rate taxpayers.

Grow your portfolio

Since limited company profits are not exposed to income tax while retained within the business, the structure allows for more capital to be used to build portfolios or refurbish existing properties.

Getting a loan should not come at a premium

Today, limited companies are well-served by the choice of products on offer and should not have to pay a premium to access finance.

Specialist lenders such as Kent Reliance for Intermediaries offer the same rates for limited companies as for private landlords.

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