Buying property through a limited company.
Whether you’re a seasoned landlord with multiple buy-to-let properties or someone considering a second home for personal use, buying property through a limited company can be attractive. This article delves into the pros and cons of this approach.
The Upside: Advantages of Buying Property Through a Limited Company
Purchasing a property through a limited company offers several enticing benefits, particularly in the realm of taxation. For instance, if you’re a private landlord, your rental income profits are taxed as income, potentially up to 45%. However, if your properties are owned through a limited company, you must only pay Corporation Tax, which is currently 19% for profits below £50,000 (Tax Year 2023/24).
Maximising Tax Benefits and Minimising Liability
Owning property through a limited company maximises tax-free benefits and operates limited liability partnerships (LLPs), reducing your overall tax burden. Additionally, you can pass on property to family members without incurring inheritance tax, provided they are shareholders in the business.
Mortgage Relief and Risk Control
Since the 2017 changes in UK tax law, private landlords can no longer deduct mortgage interest charges from their rental income. However, mortgage interest is a business expense for limited companies, allowing you to deduct the cost from pre-tax profits. Moreover, purchasing property through a limited company significantly reduces personal financial risk, protecting your personal assets if things go south.
The Downside: Pitfalls of Buying Property Through a Limited Company
While the advantages are appealing, it’s essential to recognise potential challenges when buying property through a limited company. Finding a lender can be tricky as many buy-to-let mortgage providers don’t lend to limited companies.
Navigating the Lending Landscape
If you find a willing lender, they may require personal guarantees from the company directors, potentially increasing your personal risk. Higher interest rates on limited company buy-to-let mortgages are common, so consider these when weighing the pros and cons.
Making the Move: Practical Steps to Buying Property Through a Limited Company
The process of buying property through a limited company varies depending on your current situation. If you already own property and plan to expand your buy-to-let business, setting up a limited company could be financially beneficial in the long run despite the initial tax implications.
Need More Information?
Navigating the complexities of property investment can be challenging. If you need help deciding what’s best for your properties, don’t hesitate to contact our GSB Capital team. We’re here to guide you every step of the way, ensuring you make the most out of your property investments.
THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED.
THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.