Buying a Property Through a Limited Company

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    Do you want to know the many pros and cons of buying a property through a limited company?

    Pros and Cons of Buying a Property Through a Limited Company

    There has been a recent increase in the number of people purchasing property deemed as an investment property by making the purchase through a limited company. This recent increase has mostly been due to the recent changes to the tax relief available on mortgages for companies that have been registered as limited.

    There are a significant number of pros and cons of buying a property through a limited company and ultimately will depend on how one would wish to go about purchasing a property.

    The Benefits of Buying a Property Through a Limited Company

    Some of the benefits of purchasing a property via a limited company include:

    Benefits To Inheritance Tax – If you are a landlord and wish to hand your properties down to children or other family members, a significant amount of inheritance tax can be avoided if you purchase a property through a limited company.

    Mortgage Interest Is Treated Differently – As mortgage payments would be recognised as business expenditure for a limited company, unlike mortgage payments for someone investing in property as an individual. Interest on mortgage payments can therefore be deducted before you would have to pay your corporate tax, thus making it highly advantageous.

    Profits Are Taxed Differently – Buying a property through a limited company would make you liable to pay corporation tax on any profits earned from rental income. Corporation tax is currently taxed at 19%*, which is still less than the basic rate of tax 20%. This can mean even more significant savings for those in the higher or additional rate tax brackets, who will pay upwards of 40% tax on profits earned if investing as an individual.

    The Disadvantages of Buying a Property Through a Limited Company

    Administration Burden – As a limited company, you will be required to file your accounts annually. You will need to take into consideration the extra administrative duties and paperwork. You will also most likely require an accountant, which could be costly.

    Lower Mortgage Availability – There are much fewer buy-to-let mortgages available to limited companies than there are available for investors operating as individuals. It will not only be harder to find a mortgage, but payments could also be higher too.

    It Is Costly to Transfer Properties – The legal process to change your property business to that of a limited company will be very costly. There will be conveyancer fees and taxes to be paid. This process requires you to sell your properties to your company, which can be very costly. You will need to consider stamp duty land tax, CGT, solicitor fees and other mortgage charges.

    Should I Buy a Property Through a Limited Company?

    If you are a higher-rate taxpayer, it is possible to save a significant amount of money if you purchase an investment property through a limited company. However, the choice will be entirely up to you and what ultimately suits your needs.

    Getting it right at the beginning can save future worries and a surprise bill that might come along later.

    Please do contact us if you have any queries about the information in this blog post or questions relating to buying your investment property. Our expert accountants are ready to advise and support you.

    *From April, 2023 corporation tax will rise from 19% to 25%.

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    Picture of Shahood Ahmed BSc, FMAAT, AFA MIPA

    Shahood Ahmed BSc, FMAAT, AFA MIPA

    Shahood is a fully qualified accountant, and holds UK memberships in numerous accounting bodies. Having worked in many accounting roles, he decided to set up his own practice to provide clients with the best accounting services, offering sound business advice.

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