Does your rental property count as a business?

Your rental properties might count as a business in a couple of cases. First, if they’re your primary source of income, or second, if you own multiple rental properties and acquire more with the intention of letting them out. In these circumstances, it makes sense for landlords to consider whether or not they should set up a limited company, because doing so can lead to tax advantages.

If you operate buy-to-let property (literally, property you have bought to let out to tenants as a business) then you should consider whether to operate it under sole personal ownership or a limited company.

Sole personal ownership is usually the way people start owning property – they buy it privately under their own name, and decide to let part of it out at some future point. The main benefits for this ownership structure are simplicity (you are, effectively, just a private home owner) and savings on sale. Regarding the latter, if your property has been your family home for the duration of your ownership (even if you have rented out spare rooms) then you will not be eligible for tax on sale. You will also receive a capital gains tax free allowance.

If you have a very small property portfolio, then sole personal ownership can make sense. However, if you have more properties, or they are very lucrative, you should consider forming a limited company. The main advantage of owning property through a limited company is that you will pay corporation tax on the profit you earn, rather than income tax. There are some other differences too (for example, limited companies can claim mortgage interest as an expense, and they are considered separate entities from their owners, meaning debts accrued by a limited company cannot transfer to their owner) but tax savings are likely to be the main motivator for forming a limited company to administer a property portfolio.

If you are a landlord looking to minimise his tax liabilities, call JW Hinks on 0121 456 0190. Our experienced team of specialists can help you to determine what the right course of action is and ensure that you are meeting all your regulatory obligations without incurring any unnecessary penalties.