Buying property Through a limited company

Thinking about buying a property through your limited company?

If you are a contractor, business owner or independent professional operating via a limited company, you may have considered buying a property through your business. 

Before making this decision you must look at the advantages and disadvantages, and seek professional guidance before taking action.  

Depending on your individual circumstances, it can be tax efficient to buy an additional property through your company excluding residential purpose.

What’s in this guide?

  • Benefits of buying through a limited company
  • Reasons to not buy through a limited company
  • Important questions to ask
  • Switching property to a limited company
  • Get professional advice

Benefits of buying through a limited company

There are a couple of financial reasons why you might choose to own property as a company rather than an individual. 

Firstly, the way you are taxed on the rental income will differ slightly. If you own a property as an individual, the money you get from rent will be taxed as income tax, alongside your other earnings.

But, if you choose to invest a property in your limited company, the profit you make will be liable to Corporation Tax instead, which is currently 19% on company profits.  That being said, it could make a huge difference to the amount of tax you pay, if you pay income tax at 40% or higher.

Rental profits taken as salary or dividends will be taxable income taken from your band. However, there are ways you can take your dividends to maximise tax efficiency, or you can leave them within the company to use on your next investment property.

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You can also use our free contractor mortgage calculator to find out how much you can borrow


Reasons to not buy through a limited company

The main difficulty you might come across if you intend to use your limited company to buy property, is finding a suitable lender. The majority of buy-to-let lenders will not lend to limited companies, and if they do they often want a personal guarantee from the directors. By doing this, the lender will have recourse to the director personally in the event the company defaults. In this case, additional legal costs and taxes would be due to transfer the property back to you.

Although it is possible to approach a commercial lender, you are likely to come across higher interest rates and lower loan-to-value ratios. One of the things that make the property an attractive investment is financial leverage. If you only have access to high rates and poor loan-to-value, this benefit is removed.

The other downside is that you will need to file annual company accounts that might incur additional costs and time.

Important questions to ask before making a decision

Unfortunately, there is no simple answer to this question and the choice you make will ultimately depend on a number of factors. Here are a few things you can consider:

1. How much income tax do you pay?

If you buy a property as a higher or additional rate taxpayer, you will have to pay income tax at 40-45%. However, by putting it through your limited company, you will only be subject to pay corporation tax at 20%.

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There are other options if you do not want to buy via your limited company. A lower-earning spouse could put the property into their name, only incurring income tax at 20%.

There may also be some changes in your circumstances through your limited company or umbrella, which you can read about here

2. How much money do you have?

As many lenders do not like to lend to limited companies, you might not be able to access the best rates and deals. But, buying through your company might be a good option if you have a large sum of money in savings, which you could put down on the property.

3. What is the investment for?

If you are planning to give the property to your children when you pass away, purchasing through your limited company may be beneficial. There are ways to make Inheritance Tax savings by buying this way.

Children can become shareholders of your limited company. This would mean that when the property is sold the proceeds would be distributed between the shareholders. This would still be taxable but not at the same level as inheritance tax.

Switching property to a company

The transfer of existing properties into a company would be treated as a sale by you to the company and you would be liable to Capital Gains Tax (CGT). You might also face a stamp duty charge for any property over the sum of £125,000. This could make the switch very expensive.

It is generally advised to retain existing properties in personal ownership, and buy any future properties via a company.

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Get professional advice

If buying a property through your limited company is something you have been considering, it is important to look at your long term goals as an individual, and as a company. As with any major financial decision, you should seek advice from an experienced adviser who will be able to analyse your situation and offer advice and guidance. 

Contact us online or call us on  01489 555 080

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