Avoid the DIY tax trap. The 3 costly mistakes to avoid with your new BTL company
4 out of 5 buy-to-let properties are now bought via limited companies, often to take advantage of mortgage relief and tax efficiencies. However, in the rush to get started, many new landlords are incorporating limited companies themselves and running into substantial and costly problems when it comes to managing their tax affairs.
Read our most popular free Pro Guide, avoid common ‘DIY tax traps’, and access our bonus checklist for new limited company investors.
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Head of Tax, Provestor
Head of Tax, Provestor
In this guide
In this Pro Guide, we’ll reveal the precise mistakes and ‘DIY tax traps’ property investors are falling into when starting limited companies themselves and the impact it has on tax liabilities and profitability. Plus, we’ll provide tips on how you to get your tax-smart company structure right from day one and become a property pro.
What you'll learn
Common mistakes investors make with company structures
How to save thousands in tax by planning for the future
How to invest most effectively with your spouse or business partner, and the difference it makes in hard cash
Why it matters to use the right shareholder percentages and classes, and the importance of issuing the right share values
How to avoid setting up an unmortgageable company, leaving you stranded without finance
How to spot shady firms marketing risky tax evasion schemes, with costly consequences for you
Plus, at the end of this guide you'll find a checklist and the steps you should take to maximise the success of your new limited company.
The limited company tax trap
As the impact of section 24 hits investors' tax bills, rising interest rates are compounding a profitability problem. That's why more and more investors are buying property through a limited company (rather than in their personal name) in a bid to ensure their investment is viable.
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Analysis of Companies House data by Provestor show that 40% of newly formed property investment companies have gone down the 'DIY' route, applying for a company formation themselves. They're using a basic company structure (a single share class) and the default incorporation documents (also know as "the model articles").
Setting up a company is quick, easy and cheap. For just £50, you can start your own limited company with Companies House and you're ready to buy a property. Simple, right?
Within the property buying cycle, it’s easy to understand why investors take this approach. The window between offering and completing on a property creates a metaphorical cliff edge, and the pressure is on to get a company set up pronto. In just 15 minutes you can start your company, meaning you can set up a bank account and get your funds in place to secure your purchase.
But this rush to incorporate is causing many investors to fall into an easily avoidable, but potentially costly tax trap.
4 in 10 companies have hidden tax and legal problems, which could have easily been avoided.
The costly mistakes investors are making
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In our comprehensive study of limited companies started by property investors, we have identified three key trends when it comes to tax:
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Limited company start up →
Start your tax-smart limited company and complete your property purchase with confidence
Pro Masterclass →
New to limited companies? Learn straight from the Pro's in the free 10-lesson Masterclass.
Property tax advice →
Get on-demand advice from qualified property tax advisors. Buy and book online, instantly.
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Tax-smart app →
File your company accounts and tax returns yourself using our tax-smart app
From £14.99/mo