Ltd Co or personal rent

Hi there,

First time landlord here.

I have been willed half of small house. Value 110.000. With 45k interest only mortgage still applicable. Rental value 795.00 per month.

I am a 40% tax payer in full time employment. I cannot afford. To be taxed further on my salary for the rental value. Will also be paying 30K to other sibling to buy out their half.

So In short transfer of 45k mortgage + 30K for half of share transfer. Rental income being used to pay back 30K.

Is it better I open a Ltd Co for property to be transferred too and rented from. So not to be paying 40% income tax on the rental income?.

Thanks in advance


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There isn’t a definite answer. If you dont want any personal income from the rental until a time you are no longer a higher rate tax payer then a ltd company may save you tax, however corporation and dividend tax due under a ltd company is higher than personal tax if you are in the same tax band. Also in a ltd company you cant use Capital gains tax allowance and there is potentially more costs in setting up the ltd company.

You could always sell it.

I wouldn’t bother setting up a company in your shoes. There are cons as well as pros to having your property in a company. There are other structures with LLPs and personally owned property that you could look at, but HMRC could change the rules on those any time.

Thanks David,

I really want to keep it. End game is to pay off the 30k in 48months. Then turn the 45K interest only mortgage into repayment and have that paid off.
Therefore having a house with 125K equity in towards a pension or further property.

Rather than sell it and pocket 30-40K.

Thanks Richard,

I think I’ll have to speak to a financial advisor before the property is either transferred to me personally or to a Ltd co I set up.

I don’t think the personal option will work as I’ll pay too much tax. Loathed to just sell it and pocket 30-40K. When have an opportunity to pay the small
Mortgage and family stake off and eventually. And have the opportunity to have 135k equity eventually?

Depends on whether you need any of the money now, your long term plans, future tax rates etc etc
This might be helpful … Limited Company to buy new Buy to Let

maybe it depends how old you are ? children to leave stuff To? Do you feel you will live long enough? I started off decades ago to give myself extra money in older age and help out my children. I was never bothered about extra tax .They get you one way or another

Some things to think about:
Stamp duty (extra 3pc)
Mortgages are usually more expensive for a limited company
You really need an accountant if you have a limited company If you do own it yourself, you could do your own self assessment return.
When you sell, personally, the first £12,300 is cgt free then tax at 18/28pc (depending when l whether in 20/40pc band). In ltd co, it’s corporation tax rates 19pc currently, potentially going up to 26pc, with no allowance, and then you have to get the money out of the company, which will result in another tax charge (dividends, salary etc).

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Thanks Cath,

Much appreciated. I’m being told by someone to go Ltd Co. And by another just go personally.

Think I’ll need to get another two opinions.

If I were to have house in my personal name. And decided to sell it on after renting it out for 4 years. And made eg 80K profit on the house. Will I have to pay 40% of that 80K in tax?

No. It depends on your other income. It’s 18% for the proportion of the gain that falls within your basic rate band and then 28% in your higher rate band. Your first £12,300 is tax free.

Comparing limited and personal, and looking solely at an £80k profit…

Let’s say your other income leaves you with £10k spare basic rate band…

If you owned it personally, you would have £12,300 tax free, £10k at 18% and the rest at 28%.

A company would pay tax on the £80k at between 19 and 25% (based on the rates currently due to be in force in 4 years time. Effictively: first £50k at 19%, next £200k at the marginal rate of 26.5% anything above that and it’s all at 25%).

Assuming you then withdrew the money from the company as dividends, you would pay tax at 8.25/33.75/39.35% depending on your other income.

So, with £10k spare basic rate band and no other dividends, it would be £2k tax free, £10k at 8.25% and the rest at 33.75%.

Very rough calcs (based on £80k taxable the balance after tax all being taken out of the company - it would also depend on other factors eg whether it had been let at a profit, whether you had paid any of the mortgage down etc). On the above assumptions, you’d end up with around £44,300 in your pocket through a limited company and around £62k if you owned it personally.

But, there other factors to take into account. Eg if you were already a higher rate tax payer and didn’t need the money, and were likely to be a basic rate tax payer when you needed it, you could withdraw it later over a period of time at 8.25%.

You could also make pension contributions which could reduce the tax due in either circumstance. That’s a very different calculation for personal and company contributions (eg different max contributions, different tax treatment in fund for company v personal).

And, whatever you calculate now, the government could change tax rates/rules overnight and make what was the right decision at the time the wrong one!

(Disclaimer - these are quick calcs, done on a scrap of paper, so don’t change your life because of them!)

Cath that’s is brilliant. Thank you so much.!.

I currently pay tax at 40%. So would be no spare allowance.

I think my best options are transfer the property into my personal name. Along with the small 45K interest only mortgage on it at present.

Put 10K into it to get it to a better lettable and or sellable condition.

And then decide whether to let it or sell it from after April next year. That way if I let it. I shouldn’t pay tax on income until following tax year April 22- April 23.

Which wouldn’t be due until 2024. And the 10K used to refurbish would be used to offset the tax for that period. As would be more than rental income for 22-23. Which is 750 a month and in effect be a loss for that period against the 10K expense to refurbish. As rental would only come to 9K.

Or so I have been informed.

Thank you again it’s greatly appreciated.


It’s not that simple.

If you have it in a company already, that is a separate legal entity and you would have to transfer it at market value, which could give you a tax charge now.

The will also be stamp duty implications.

Your mortgage will be in the company name and you can’t just take it over personally, so if you have a fixed mortgage with an early redemption charge, that would be triggered.

If you bought it less than 6 months ago, you won’t be able to raise another mortgage on it until after 6 months.

And your refurb costs may be deductible for income tax (revenue) or capital gains - depends if it is an improvement, if it needed doing to let, or a genuine repair (eg extra kitchen units would be capital, replacing existing units could be capital or revenue depending on whether it was lettable with the existing kitchen, or if you bought it cheaply because it needed refurbishment before it could be let.). Things like utility costs would only be revenue. You could end up with a revenue loss that you could end up wasting. And interest would only be deductible at 20% to the extent that there were any profits left after costs.

Through a limited company, there is less of a problem between capital gains and revenue losses You can potentially offset a revenue loss against a capital gain in a company. You can’t (normally - there are some very limited circumstances, not these!, In which you can) offset a revenue loss against a capital gain in personal tax.

Hi Cath,

The property has been left to me in my late grandmothers will. When she passed end of Nov.

Mortgage and property is still in her name. I’m trying to find out if should just have mortgage and deeds transferred to my name. Do it up and rent it or sell it.

If rent it. Then is it better to do so in my name and I’m already a 40% tax payer. Or set up a Ltd Co and have it transferred to that. And try use it as stepping stone to get another property to rent perhaps.

I’m not desperate for any income from it. Just wish to have small outstanding mortgage paid off eventually and have the equity it would provide.



Ahh, ok, that makes more sense then!

The most straightforward thing would be to do it in your own name. Not sure what the legal implications would be if you wanted to put it in a limited company since it was presumably left to you in her will, not to a limited company - ie legally, can it go into the company from probate, or does it have to go to you first. That can make a difference to stamp duty, mortgages etc.

It really depends on your long term plans, whether you will be a 40pc tax payer in retirement etc. Your advantage of a limited company, if you are looking to build up a portfolio as a 40pc is that you pay less tax so have more money to reinvest. But the main disadvantage is the double tax charge to get money out.

Also, if you are looking to keep the properties in retirement and leave them to the next generation, if you own them personally, they will be inherited at their probate value, so the capital gains clock is reset. If they are in a limited company, the company is inherited with the gain still taxable within it.