The Pros and Cons of Getting a Buy-to-Let Mortgage in Ireland: Individual vs. Company

Buying as an Individual

Investing in property has long been a popular way to generate wealth in Ireland, and buy-to-let (BTL) mortgages provide a means for investors to enter the rental market. However, one of the key decisions prospective landlords must make is whether to purchase property as an individual or through a company. Both options have their pros and cons, and understanding these can help investors make informed decisions that align with their financial goals.

Advantages:

1. Simpler Process: Obtaining a buy-to-let mortgage as an individual is generally more straightforward. The application process is typically faster, with fewer regulatory and administrative hurdles compared to purchasing through a company.
2. Lower Interest Rates: Lenders often offer lower interest rates to individuals than to companies, as personal lending is seen as less risky. This can translate into lower monthly repayments and overall borrowing costs.
3. Capital Gains Tax (CGT) Exemptions: Individuals may be eligible for specific reliefs and exemptions, such as the Capital Gains Tax (CGT) exemption for principal private residences if they have lived in the property previously.
4. Less Complex Accounting: As an individual, the accounting and tax filing requirements are less complex compared to managing a limited company. This can save on professional fees and administrative time.

Disadvantages:

1. Higher Tax Rates: Rental income earned by individuals is taxed at the marginal rate, which can be as high as 52% when combining income tax, PRSI, and USC. This can significantly reduce net returns.
2. Limited Tax Deductions: Individuals have fewer opportunities to offset expenses against rental income compared to a company structure. For instance, mortgage interest relief is restricted, which impacts profitability.
3. Inheritance Planning Challenges: Transferring property to heirs can be costly due to capital acquisitions tax (CAT) and stamp duty, which may not apply as favourably compared to company-owned properties.
4. Liability Exposure: As an individual landlord, you are personally liable for any debts related to the property, which could put your personal assets at risk.

Buying as a Company

Advantages:

1. Lower Corporation Tax: A significant advantage of purchasing through a company is that rental profits are taxed at the corporation tax rate of 12.5% (in specific cases), which is much lower than the personal income tax rates applicable to individuals.
2. Expense Deductions: Companies can deduct a wider range of expenses, including mortgage interest, professional fees, and maintenance costs, which can reduce taxable income.
3. Asset Protection: A company structure provides limited liability, meaning that personal assets are generally protected if the business encounters financial difficulties.
4. Easier Ownership Transfer: Transferring ownership of property through a company can be more tax-efficient compared to transferring property held personally, as shares in a company can be passed on without triggering substantial tax liabilities.

Disadvantages:

1. Higher Interest Rates and Fees: Lenders perceive corporate borrowing as riskier, often leading to higher interest rates and arrangement fees for BTL mortgages taken out by a company.
2. Complexity and Administrative Burden: Running a property through a company requires compliance with corporate tax regulations, annual returns, and bookkeeping obligations, adding to costs and administrative effort.
3. Extraction of Profits: While corporation tax is lower, extracting profits from the company (e.g., via salary or dividends) can incur additional taxes, potentially negating some of the tax savings.
4. Limited Mortgage Availability: Some lenders do not offer BTL mortgages to limited companies, which can restrict financing options and flexibility.

Choosing between buying a buy-to-let property as an individual or through a company in Ireland depends largely on an investor’s financial circumstances and long-term goals. Individuals benefit from simplicity and lower interest rates but face higher personal tax rates and liability risks. On the other hand, purchasing through a company offers tax advantages and asset protection but comes with higher administrative responsibilities and costs.

Prospective landlords should carefully evaluate these factors and seek professional advice to determine the most suitable approach for their investment strategy.