Is It Beneficial to Hold One BTL Property Per Company?

When considering buy-to-let (BTL) property investment, one of the most debated strategies among landlords is whether to place each BTL property within a separate limited company or consolidate multiple properties within a single limited company. While the idea may seem straightforward, the practical and financial implications of such an approach can be far-reaching. It is crucial to explore the pros and cons of buying one BTL property per company in order to make informed decisions for your property portfolio.

Why Consider Holding One BTL Property Investment Per Company? (H2)

1. Risk Isolation

A primary argument for holding each property in a separate company is to isolate risk. If one property faces financial difficulties, such as mortgage arrears or depreciation in value, only that company is affected. This structure ensures creditors cannot claim assets or income from other properties you own under separate entities. For example, in the event of default on one property’s mortgage, lenders can only pursue the assets of that specific company. This reduces the risk of a domino effect where one struggling property jeopardises the financial health of your entire portfolio.

2. Simplified Exit Strategy

If you decide to sell a property, doing so via a company structure can simplify the transaction. The buyer may choose to purchase the company rather than just the property, avoiding stamp duty land tax (SDLT) on the property transfer. This makes your BTL property investment potentially more attractive to future buyers. To this extent, holding one property per company may be advantageous.

3. Tax Efficiencies

Corporation tax rates are often lower than personal income tax rates and holding properties under a limited company structure enables landlords to deduct various expenses, importantly including mortgage interest, before calculating taxable profits. Having one property per company helps with straightforward book keeping, with fewer risks of cross-property deductions being scrutinised.

Potential Drawbacks of Placing Each BTL Within a Separate Limited Company

1. Administrative Burden

Managing one BTL property per company requires maintaining separate bank accounts, tax filings and financial records for each entity. This can quickly escalate into a significant administrative workload for landlords with multiple properties. If you are considering separate companies for each BTL property you own, ensure that you are up to the administrative requirements of managing each entity separately.

2. Additional Costs with Multiple Companies

Each limited company you have requires separate incorporation and can lead to higher accountancy costs. These expenses can add up and potentially reduce the overall profitability of your portfolio. It is important to understand how much these costs can add up to, especially if you are considering owning several properties at a time.

3. Limited Practical Risk Mitigation

Although the idea of isolating risk by placing each BTL with a limited company of its own sounds attractive, it is not foolproof. Lenders typically require personal guarantees on BTL mortgages. If a company defaults, the lender can still pursue the personal guarantor, potentially undermining the protective barrier of individual companies. In other words, whether you put one property in one company or several in one company, the lenders will still most likely come to you for repayment.

4. Impact on Creditworthiness

Defaulting on a mortgage, even under a company structure, can damage your reputation as a borrower. This makes it harder to secure financing for future investments. Furthermore, the additional administrative and financial obligations may reduce your ability to scale up your portfolio efficiently.

When Does It Make Sense to Hold One BTL Property Per Company?

1. Isolating Risky Investments

If you are considering a high-risk property, perhaps in a less stable area or one with significant refurbishment requirements, it may make sense to place it in its own company. This way, you can protect the rest of your portfolio should the investment underperform.

2. Tax Planning for High-Income Landlords

For landlords in higher income tax brackets, holding individual properties each in its own limited company can lead to potential tax structuring advantages and tax savings, even if managing multiple companies adds complexity. Each case requires individual analysis, however, which is perhaps best carried out with the guidance of a tax advisor.

What Are Some Alternatives to the One-Company-Per-Property Approach?

1. Consolidation

Many landlords find it more practical to consolidate multiple properties under a single company. This reduces the administrative workload while still allowing access to limited company tax benefits, such as the deduction of the entirety of the mortgage interest for tax calculation purposes.

2. Insurance Solutions

Instead of isolating risk through multiple companies, consider comprehensive landlord insurance policies to mitigate financial exposure due to potential liabilities or losses.

3. Diversifying Loan Structures

If financial risk management is your primary concern and motivation for buying one BTL investment property per company, working with different lenders for separate properties can potentially limit your exposure while avoiding the complexities of creating and managing multiple companies.

Conclusion

While holding one BTL property per company has theoretical advantages, such as risk isolation and ease of sale, it comes with administrative and financial costs. Before deciding whether to pursue this strategy for buying a BTL, landlords should weigh the pros and cons in the context of their specific portfolio and financial goals. Consulting a tax advisor and property specialist might be essential to ensure that you are making the best decision for your BTL venture.

FAQs

Q. What is the main benefit of holding one property per company?

A. The main benefit is risk isolation. If one property underperforms or defaults, only that specific company is affected, protecting your other assets.

Q. Does holding properties in separate companies reduce tax?

A. Not necessarily. While corporate structures offer tax efficiencies, the administrative costs of maintaining multiple companies may offset these savings. Each landlord’s tax situation should be reviewed by a professional tax advisor.

Q. Is it easier to get a mortgage for properties under one company?

A. Mortgage applications under a single company are often more straightforward. Lenders typically require detailed financials for each company, which can be cumbersome if you operate multiple entities.

Q. Does one property per company eliminate personal financial risk?

A. No. Most lenders require personal guarantees for buy-to-let mortgages, meaning you remain personally liable even if a company defaults.

Q. What is the biggest drawback of one-property-per-company?

A. The administrative and financial costs of maintaining multiple companies can outweigh the benefits for many landlords.