Becoming an HMO (House in Multiple Occupation) landlord in the UK offers a lucrative opportunity for investors aiming to maximise rental yields by renting out multiple rooms within a single property.

However, transitioning from an individual landlord to setting up a dedicated company can offer significant benefits, particularly in terms of tax efficiency, liability protection, and professional management. Here’s a step-by-step guide for UK-based landlords on how to set up a company specifically for managing HMO properties.

1. Why Set Up a Company for Your HMO Portfolio?

Setting up a company for your HMO properties has several advantages:

Tax Benefits: Corporate tax rates on profits are generally lower than personal income tax rates, and by setting up a company, landlords can often reinvest more profit back into their business.

Limited Liability: A limited company protects personal assets, as liabilities are restricted to the business, not the individual.

Increased Credibility: Operating as a company enhances credibility with lenders, letting agents, and tenants, especially in the competitive HMO sector.

Inheritance Planning: With proper planning, a limited company offers more flexibility in passing down assets to family members or other successors.

2. Decide on the Company Structure

For HMO landlords, the most common company structure in the UK is a Private Limited Company (Ltd). This structure provides limited liability, allows for different shareholders, and is relatively straightforward to manage. Alternatives like Limited Liability Partnerships (LLP) or Public Limited Companies (PLC) are less common for individual landlords and HMO investors.

3. Register Your Company with Companies House

To establish your company, you’ll need to register with Companies House. This can be done online and typically costs around £50 for a standard registration. You will need to provide:

Company Name: Ensure your company name is unique and meets the naming requirements.

Registered Address: A UK address where official documents will be sent.

Directors and Shareholders: Appoint at least one director (usually yourself) and specify any shareholders if applicable.

SIC Code: This code represents your business activity. For HMO landlords, you might use SIC code 68209, which covers “other letting and operating of own or leased real estate.”

Once registered, you’ll receive a Certificate of Incorporation confirming that your company is officially recognised in the UK.

4. Open a Business Bank Account

A separate business bank account is crucial for managing HMO income and expenses. This will keep your personal finances distinct from the business, making it easier to handle accounting and comply with tax regulations. Many UK banks offer specific accounts for property businesses with benefits like free initial banking and easy integration with accounting software.

5. Understand Tax Implications for HMO Companies

Operating through a company changes how you’ll handle taxes:

Corporation Tax: Instead of paying income tax on rental income, your company will pay corporation tax on its profits. The current rate is 19% but may vary in future years.

Dividend Tax: When withdrawing profits, you’ll pay dividend tax, which may be lower than the higher income tax rates.

Expense Deductions: Operating through a company allows for various deductible expenses, including property maintenance, repairs, insurance, and other operational costs related to your HMOs.

Consulting a UK-based property accountant can help ensure you’re maximising tax efficiency and compliance.

6. Obtain an HMO Licence and Comply with Regulations

All HMO properties require an HMO licence from the local council. This licence ensures your property meets safety and management standards, including fire safety regulations, room sizes, and adequate facilities for the number of tenants.

Check Local Requirements: Each council may have unique requirements, so verify specifics with the council where your HMO is located.

Ensure Regular Inspections: Keep the property in good repair to meet legal standards and maintain tenant satisfaction.

Additionally, setting up a company does not exempt you from these obligations—every property under the company’s management must be fully compliant with HMO regulations.

7. Secure Suitable Financing

As a company, obtaining finance might differ slightly from personal mortgages. Many lenders in the UK offer limited company buy-to-let mortgages specifically for HMO landlords.

Approach Specialist Lenders: Lenders that specialise in HMO financing or buy-to-let mortgages for limited companies will be best positioned to offer competitive rates.

Prepare Documentation: Lenders may require detailed business plans, projected rental income, and a history of your HMO experience.

Consider Interest Rates and Fees: Interest rates on limited company mortgages can vary, so it’s essential to compare lenders for the best deals.

8. Manage Your HMO Operations Professionally

With a company in place, aim to manage your HMO properties professionally. Key aspects include:

Effective Tenant Screening: Set up processes to verify tenant backgrounds, which helps maintain a harmonious living environment.

Routine Maintenance: Regularly check and maintain the property to comply with regulations and keep tenants satisfied.

Professional Record-Keeping: Accurate records for all transactions, repairs, and tenant interactions are vital for smooth operations and to simplify your tax filings.

Using property management software can streamline operations, helping you keep track of rental payments, maintenance schedules, and compliance.

9. Consider Hiring a Property Management Agency

For landlords managing multiple HMOs, a property management agency can ease the workload by handling tenant interactions, repairs, and even compliance checks. Many UK agencies specialise in HMO management, providing expertise that can boost occupancy rates and rental yields.

10. Stay Updated on Legislative Changes

The UK’s HMO regulations are subject to change. As a company director, it’s crucial to stay updated on laws affecting HMOs, landlord obligations, and tax rules. Joining industry associations, attending property seminars, or consulting a property lawyer can ensure you’re always informed.

Landlord’s HMO property certificates

In Closing

Setting up a company as an HMO landlord in the UK requires careful planning, from registration with Companies House to navigating tax implications and regulatory requirements. While it involves upfront effort, the benefits—including tax efficiency, professional credibility, and limited liability—make it an attractive path for dedicated HMO investors.

With a well-structured company and professional management, you can maximise returns on your HMO investments while staying compliant with UK laws.

Further Reading