Is it worthwhile for a landlord to set up a limited company?

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With cuts to commercial mortgage interest rates, landlords are considering setting up limited companies to save tax, but is this a worthwhile strategy?

There are many commercial mortgages products available for limited companies to purchase buy to let property. Interest rates charged to companies are generally higher both on fixed and variable mortgages than those charged to individual landlords. The average interest rate for a two-year fixed buy to let mortgage for a company is 4.29% compared to 3.01% for non-company borrowers.

Companies pay less tax than individual landlords on high tax bands, but the extra mortgage interest paid needs to be considered when calculating tax savings.

Fees are charged to set up limited companies, and there can be extra administration costs. Existing properties owned by the individual landlords can be sold to the limited company at the market rate, but there will be pay stamp duty charges and capital gains tax. As a general guide, the company needs to own several properties to make savings.

Most landlords use special purpose vehicle (SPV) companies that have the one purpose of holding property. This is because there are more mortgage products for SPVs than limited companies that operate many types of business.

For some landlords, forming limited companies makes financial sense. Landlords considering this strategy should seek expert financial advice before proceeding. A mortgage broker will then be able to find the best commercial mortgage deals and help with the mortgage application process.

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