What risks can come with incorporating your portfolio, and what are the costs? Here, we cover all the details you need to know.
Incorporation has become a buzzword in the property investment sector. With rising tax pressures and shifting regulations, many landlords are exploring incorporating into a Limited Company to protect profits and plan for the future. But despite all the benefits that can come with Limited Company Incorporation, there are still costs, risks, and potential pitfalls that landlords and property investors need to be aware of.
The Real Price of Incorporation
Let’s start with the numbers. Incorporating your property portfolio isn’t just a paperwork exercise, it’s a financial commitment. Professional tax advice alone can set you back around £14,000. Add in the broker fees, valuation costs, product fees and dual legal expenses (due to the dual role of buyer and seller within an Incorporation process), and the total bill quickly escalates.
Some landlords try to sidestep the refinancing step by transferring only the beneficial ownership of properties. While this can reduce upfront costs, it introduces its own legal and tax complexities that must be navigated with care.
Please speak to a professional tax advisor before making any property investment decisions.
Tax: A Double-Edged Sword
While Limited Companies benefit from lower Corporation Tax rates, ranging from 19% to 25%, the real sting comes when you try to access your profits. Dividend Tax, which can reach up to 39%, applies when you take money out of the company. Depending on your personal income, this could significantly reduce your returns.
The Danger of Bad Advice
Perhaps the most alarming risk isn’t financial, it’s legal. In recent months, HMRC has launched investigations into a number of Incorporation schemes that are either promoted by unqualified advisors or encourage aggressive tax avoidance. These schemes often relied on flawed legal documents or artificial financial structures/transactions, such as inflated director’s loan accounts with no commercial basis.
In one case, a deed of trust allowed landlords to revoke the transfer of ownership, which likely invalidated the entire tax structure in the eyes of HMRC. The result? Landlords may now face significant tax bills, with limited recourse against the advisors who sold them the scheme.
The Bottom Line
Incorporation can be a powerful tool, but only when done right and for landlords eligible to access the benefits on offer. It’s not a shortcut and certainly not a one-size-fits-all solution. Every landlord’s situation is unique, and the stakes are high. Before making the leap, seek qualified tax advice, and ensure every step is legally sound.
Because when it comes to Incorporation, the cost of getting it wrong can be far greater than the cost of doing it right.
Our experts can get you in touch with our partners at Comprehensive Tax Planning, who can help you find the right tax solution for your property investments.
If you’re approaching your refinance or looking for a new Limited Company mortgage rate, speak to our team! Call us on 0345 345 6788 or submit an enquiry here.
The full version of our recent webinar, ‘BTL Incorporation & Landlord Tax: Your Questions Answered’, is now available to watch on demand! We brought together the experts to help you understand the Incorporation process and how it could boost your property portfolio. Watch it back here.
Next Steps
To find out what’s right for you, it’s essential to get in touch.
For information about Limited Company mortgage finance, please submit an enquiry here or call us on 0345 345 6788.
If you need professional tax advice, please contact our partners at Comprehensive Tax Planning.
