Can you buy property through a limited company? | Pros vs Cons

Can you buy property through a limited company?

Landlords purchasing property through a limited company can enjoy many benefits, especially if they are a higher rate taxpayer or want to build up their property investment portfolio.

These benefits include improved tax efficiencies and planning, better financial flexibility and inheritance planning, and improved portfolio expansion.

How do you set up a limited company to buy property?

Setting up a limited company to build your property portfolio can be a complicated process.

It is best to seek the help and guidance of a property tax advisor like VW Taxation, to not only understand the legal process of setting up a limited company for buying property but also to fully understand the tax implications of doing so.

Can you transfer personal property into a limited company?

Yes, landlords can move their property to a limited company if they wish to do so. In most cases, the properties being transferred to a limited company will be referred to as SPV or Specialist Purpose Vehicle.

Pros of buying property through a limited company

There are indeed some very tempting benefits of purchasing property through a limited company, including:

No capital gains tax on the sale of property

You don’t have to pay any CGT (Capital Gains Tax) if you sell the property while living in it as your home and if your property is listed under your limited company.
So, in this case, CGT becomes a personal tax, compared to CT (corporation tax), for instance, as that’s a company tax.

Pay corporation tax on rental income

Another major benefit of owning property through a limited company is that you pay CT tax rates and not personal income tax rates on all profits earned from rental property.

This is currently set at 25% and 19% – in the case of the latter, you can get the Small Profits Rate as long as you qualify for it; i.e. you’re making a profit of £50,000 or less a year.

Reduce inheritance tax implications

If you own property through a limited company, your estate’s beneficiaries can claim Business Relief to cut down the total Inheritance Tax payable on your property portfolio.

Conversely, your beneficiaries may have to pay up to 40% Inheritance Tax on properties marked above the £325,000 threshold, which is another major advantage.

Limited liability protection

Holding investment properties through a limited company means that you will be covered via limited liability against losses or setbacks your business faces. For example, if you have outstanding debts or are being sued, you will not be personally held responsible.

Cons of buying property through a limited company

While there are clear benefits for landlords to own property through a limited company, there can also be a few potential disadvantages that are worth considering:

Higher upfront costs

Limited companies must bear a higher upfront cost of buying property as opposed to individual buyers. Plus, there are typically higher mortgage costs involved as well, which could impact return on investment at some point.

The UK government has imposed certain regulations, including mortgage interest tax relief restrictions and higher stamp duty rates, which have added to the higher upfront costs of buying property.

Limited company mortgages can be more expensive

This must definitely be added to the list of disadvantages as many lenders are not willing to offer a viable mortgage option to limited companies. Naturally, this will have an adverse effect on the options that are available to landlords for financing.

Additionally, lenders may have even more stringent criteria for property investors owning a limited company, which includes higher credit score thresholds and extra documentation requirements.

Meeting such requirements will likely involve extra costs as well – e.g. hiring professionals to prepare specific financial statements or carry out property appraisals.

Administrative burden

Landlords looking to buy property through a limited company may also have to face extra administrative burdens. Running a limited liability company leads to more administrative obligations compared to property ownership on an individual basis.

This could be anything from complying with the various reporting and filing requirements – such as annual accounts and tax returns – to hiring accountants or company secretaries to perform complex, time-consuming tasks. Ultimately, all of these can add to your administrative burden and cost of property ownership.

Is it worth becoming a limited company landlord?

Well, this comes down to your individual goals and how much you’re willing to put on the line.

More importantly, you need to ask some important questions before taking the plunge, such as:

  • Am I financially prepared?
  • Can I conduct due diligence myself without any external help?
  • Have I researched the local market?
  • Should I consider a contingency plan?
  • Will I need property management services at some point?
  • How do I know which financing options are ideal or available to me?
  • Have I clearly defined my investment goals, and do I have a robust strategy in place?

Looking for landlord tax advice? Get in touch

There are certain considerations to take into account when deciding to buy property through a limited company. In any case, seeking independent and impartial financial advice as well as getting professional guidance on the options available to you, is a great first step.

Our team here at VW Taxation is always ready to assist and available for a free initial consultation.

Frequently asked questions about buying property through a limited company

Do you pay stamp duty land tax when buying through a limited company?

Yes, you do, although a few things need to be kept in mind:

Stamp duty on property purchased through a limited company is paid a bit differently than that paid by an individual buyer.

For example, apart from the standard stamp duty land tax rate, limited companies must pay an extra 3% surcharge, which applies to all properties purchased.

Can you live in a house bought by your limited company?

Yes, you can; however, this is generally not recommended without consulting a mortgage advisor prior to buying property through a limited company. Unless you do this, things can get tricky once you occupy the property as your ‘home’.

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Picture of Gary Ellis | Director | VW Taxation
Gary Ellis | Director | VW Taxation

VW Taxation are self employment tax specialists based in Portsmouth. We specialise in tax accounting for contractors, limited companies and the self-employed.

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