Our guide to a buy to let investment held in your own limited company

Finding The Right Property

Budget: If your costs are more than your rental yield then it isn’t a good investment. Workout your budget carefully and speak to a reputable mortgage advisor to check how much you can borrow against the expected rent. You will also need to factor in insurance, the costs of buying, agency fees, legal costs, maintenance and renovation costs.

Rental Yield: To work out your annual return on investment, subtract your annual mortgage cost from your annual rent and then work this out as a percentage of the deposit you will require. For a £100,000 property that could rent for £500 per month, you would need a £25,000 deposit and roughly £2,000 in buying costs.

Know your target market: It is important to know which potential tenant market you are aiming for. It could be students, HMO’s, commuters or families. Research what kind of property your target tenant might like, for example families will want to be close by to a school and park. Commuters would like to be in walking distance to public transport. You would need to check with your mortgage company as there might be restrictions on occupants and property type.

Location: Location is key when looking for a buy to let that will rent quickly and at a good rental price. Now you know your target market you will need to research their ideal location. Look at the online portals i.e Rightmove or Zoopla and do a price comparison with different areas to see which area is getting the highest rents. Properties near to good transport links and amenities are likely to get the best rents and quickly be occupied.

Interior and Garden: According to Rightmove research the kitchen and living room have the most engagements on an advert. An inexpensive but modern kitchen will be popular amongst tenants and can add a premium onto the rent. You do not need to spend a fortune for a kitchen but put in easy maintainable fixtures and fittings that are clean and functional. Painting the property in neutral colours is advisable. When it comes to the garden most people want a small garden that is easy to maintain. It will depend on your tenants. Young families will prefer a good sized garden, but for students or young professionals having somewhere that doesn’t require weeding or cutting the grass is likely to be more attractive than a large plot which would require a lot of maintenance.

Maintenance and expenses: Check council tax banding for the property and compare this to surrounding properties. Check the EPC rating and any recommendations on the certificate. Current legislation states that the EPC must have a rating of E or above in order to rent. If the property is leasehold check the length of the lease, your responsibilities under the lease and any restrictions on the property. View service charge accounts and check how much ground rent is payable.

Setting up a limited company

Setting up a limited company is a relatively simple task. You can register with Companies House online or by post and it costs from just £12.

Our key points to know when registering:

 1. Company Name and Address: 

  • You’ll need to create a unique company name- you can check this against a current register
  • The address is allowed to be your residential address

2. Directors and Shareholders:

  • You need to appoint at least one director
  • You can add additional directors and/or a company secretary
  • Each shareholder should be allocated a percentage share of the company.
  • Any shareholder with a holding that is greater than 25% is therefore a person with significant control (PSC)
  • Each PSC’s name, month and year of birth, nationality and service address will feature on the public register

 3. Definition of Business Activity: 

Some lenders will require the company to be defined using the following Standard Industry Classifications:

  • 68100- Buying and selling own real estate
  • 68209- Other letting and operating of owned or leased real estate
  • 68320- Management of real estate on a fee or contract basis

 4. Once the company is registered: 

  • You have to register for Corporation Tax within 3 months
  • You will need to set up a business bank account

5. How to purchase your new buy to let property under a limited company:

  • Select a solicitor to represent you
  • Select your property and place your offer in your new company name
  • Complete purchase in your new company name

Benefits of having your buy to let properties in a limited company

  • It is easier to transfer a limited company to another owner than a privately held property. The property will not change owners but will remain under the company’s ownership which can protect the transaction from Capital Gains Tax, Inheritance Tax and Stamp Duty.
  • Keeping profits within the company helps to protect you from tax liabilities because you will not be making a “capital gain” as your business is making a profit. This can help you use your earnings to expand your portfolio faster.

With 45 years’ experience in buy to let investments Dedman Lettings can help you find your own buy to let investment property. We can advise on purchasing the property within a limited company and help you obtain the maximum return for your investment.

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