Do you have a significant buy to let portfolio? Perhaps you are in the process of building one.
In this case, transferring into a limited company structure may makes sense, as running buy to let properties within a company may help you save serious money on tax payments. Of course, that involves getting professional tax advice.
If you’re wondering how to scale a buy to let portfolio using a limited company structure, you are in the right place. Keep reading to learn more.
Before anything else, it helps to define your financial and wealth-building goals.
What do you want to achieve with your buy to let portfolio? Are there specific financial goals you want to reach within a particular timeframe?
Having specific goals helps with the framework of your portfolio plan. For example, it might include an exit plan, where you use a limited company structure to more efficiently pass your properties on to your children for inheritance purposes.
If you are a business owner and have a trading limited company already in operation, you might think it makes sense to use that company to buy property.
However, whilst this is possible, it is actually not as beneficial as setting up a new limited company for the specific purpose of property investment. A limited company set up for a single, specific purpose is called an SPV (Special Purpose Vehicle).
Limited company mortgage lenders far prefer an SPV, over a trading limited company, because the risks attached to other activities within a trading company could impact the property they are securing your mortgage loan against.
If you buy property through an SPV, the risks in play are those attached to the property.
You will have a lot more mortgage options, because more lenders accept SPVs than the number that accept trading limited companies, and with more mortgage choice comes the potential for lower mortgage interest rates and more flexible mortgage criteria.
Setting up an SPV will involve registering with Companies House, choosing a company name, and appointing directors. You will also need to use a registered UK address.
When seeking funding as a limited company for buying new buy to let properties, you will have more mortgage options if you look beyond just the high street banks.
There are a huge number of specialist lenders who offer limited company buy to let mortgages, whose mortgage interest rates may be lower and who offer terms and conditions (mortgage criteria) that may suit you better than the fewer number of high street banks who offer limited company buy to let products.
A specialist broker like commercialtrust.co.uk will offer expert advice and support throughout your application and through to completion.
Their advisors will take you through a thorough consultation to understand your investment goals, the type of property you are investing in and your financial position. They will do all the due diligence necessary to identify the best limited company buy to let mortgage deal available to you from over 80 lenders operating in this area of finance.
A large part of scaling your buy to let portfolio involves reinvesting the profits you make.
The good news is that, when you have a company that owns the property, you can then keep profits from the rent (that remain after paying mortgage, maintenance and other costs), for reinvesting into the business (rather than having to take the profit out of the company, which would lead to paying personal income tax).
So, you can leave the profits within the company and begin using them to buy more properties. It’s a great way to grow wealth over time, and – if carefully managed – the process can act like a snowball effect, allowing you to invest more and more.
Scaling a property business is no walk in the park.
To understand the full ins and outs of property tax, it is best to work directly with a specialist property accountant.
They will advise you on whether a limited company structure is the best avenue to take when investing in property. They can also give you advice on things like cash flow management, dividend planning, financial reporting and tax filings to ensure you avoid HMRC penalties and maximise your earnings.
In the end, having a professional on your side makes the process that much easier.
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