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Purchasing property through a Limited Company is a popular route for investors, but it requires careful planning. A Limited Company is a separate legal entity, which means that any property it acquires is owned by the company rather than you personally, even if you are the sole director. This distinction affects everything from mortgage arrangements to tax obligations.
Many landlords use this approach to secure buy-to-let mortgages and must decide whether it is better to buy as an individual or through a company. Others may wish to acquire commercial property to serve as business premises.
Understanding whether buying through a Limited Company is right for you requires looking at both the benefits and the potential drawbacks. This guide will walk you through the key considerations so you can make an informed decision.
How does buying property through a limited company work?
We’ll begin with a quick overview and then delve a little deeper into each step:
1. Set up a Limited Company:
If you’re setting up a Limited Company to buy property, you may need to speak to an accountant to decide if it’s worth structuring it as a Special Purchase Vehicle (SPV).
2. Decide which type of property you want to purchase:
Commercial and residential properties have different mortgage and tax considerations.
3. Investigate the property:
Research any potential property extensively to ensure it’s worth the asking price.
4. Approach lenders:
Securing a mortgage as a Limited Company can be trickier than for personal applicants.
Whether you buy through a new company or an existing one, the business becomes the legal owner of the property. This means the company is responsible for managing the property, paying taxes, and handling any related issues.
Mortgages for Limited Companies differ from personal mortgages, with variations in interest rates, deposits, and repayment structures.
Advantages of buying property through a limited company
Tax efficiency
Owning property through a company changes how tax is applied. Rental income is recorded in the company accounts, and profits are subject to Corporation Tax rather than personal income tax. Since Corporation Tax currently tops out at 25%, compared with up to 45% for individuals on high personal earnings, there is potential for significant savings.
You can also claim maintenance and repair costs as allowable business expenses, reducing taxable profits and Corporation Tax liability.
Mortgage interest relief
Though we’ve just mentioned maintenance and repair work, you can claim an even more significant tax relief when you own property through a company.
Mortgage interest is regarded as an allowable expense for limited companies, which means you can deduct the cost of any mortgage interest from your taxable profits. This reduces the amount of corporation tax you’ll have to pay and is usually most beneficial when you own multiple properties with a simple company.
Limited liability protection
Because the company owns the property, your personal liability is limited. If the business encounters financial difficulty, your personal assets are generally protected beyond your initial share capital investment.
Inheritance tax and estate planning
If you intend to pass property on to your family or loved ones, owning via a limited company may be the most advantageous way to do so. Property owned through a limited company is eligible for business relief, which can be used to reduce overall inheritance tax liability.
Disadvantages and challenges
Higher administrative responsibilities
Running a company to own property means more paperwork, including managing taxes and fees and maintaining proper accounting records. Lenders may also require additional documentation, such as a business plan, when evaluating mortgage applications.
Limited mortgage options
Mortgages for Limited Companies tend to be more expensive and restrictive. Lenders assess the property’s potential income rather than its market value, often requiring larger deposits and charging higher interest rates. Some lenders may also request personal assets as security due to the limited liability structure.
No Capital Gains Tax allowance
If you’re selling your property and want to use Capital Gains Tax (CGT) allowance, you can only do so as an individual. The allowance doesn’t apply to limited companies, as they don’t pay CGT and instead have to pay corporation tax against the profit from disposal.
Stamp duty surcharge
Limited Companies pay an additional 5% SDLT on residential properties over £40,000, making overall costs higher than for individual buyers.
Following the 2024 budget, the surcharge varies by property value:
Buying commercial property instead? You don’t need to worry about the 5% surcharge as it doesn’t apply to any non-residential properties. You can also learn more about negotiating the best deal on a commercial property purchase in this guide.
Transferring personally owned property to a limited company
If you want to transfer ownership from yourself to your company or vice-versa, prepare for a whole lot of admin. You’ll need to sell it to the new owner, which means you’ll have to account for additional charges like stamp duty and legal fees.
If you’re just starting out in property investment but know you’ll want to transfer ownership further down the line, speak to an accountant or legal professional early on to help build a plan for it.
Is a limited company buying property the right approach?
With all of these benefits and disadvantages covered, we can now explore whether buying a property as a limited company is right for you.
Buying property through a limited company grants you additional legal protection and provides better tax efficiency – but only if you make a meaningful profit. If you’re a basic-rate taxpayer and you only want to own a single property, it may be easier to buy it directly.
If you already run a limited company and want to buy non-residential property, doing so through your business provides more tax advantages and keeps everything within the business.
Ultimately, however, every case is different. What works for one company may not work for another – so you must speak to an accountant about your plans and ask for advice.
Our team here at Crunch can help you make the most cost-effective choice and provide ongoing tax filing services to ensure your new property doesn’t fall afoul of HMRC. Give us a call on 0330 4040664 to learn more about our online accounting packages.
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