You may have considered buying property through your limited company.  In recent years, there has been a substantial move towards buying property through limited companies.  Although you can purchase property through a limited company, it is vital to look at the benefits, drawbacks and legal process before making this decision.

What are the benefits of buying property through a limited company?

A significant benefit is the tax treatment of profits. For private landlords, profits from rental income are taxed via income alongside your other earnings.  However, if you choose to buy property through a limited company, the profit you make will be liable to corporation tax instead. Corporation tax is currently 19%.

Additionally, private landlords can no longer deduct their mortgage expenses from rental income to reduce their tax bill.  Instead, they receive a tax-credit based on 20% of their mortgage interest payments.  This means additional or higher rate taxpayers won’t get all their tax back on mortgage payments as the credit only refunds tax at the basic rate.  However, mortgage interest is treated as a business expense for limited companies, which means by purchasing property through your company, you can deduct the cost before paying your corporation tax.

Lastly, if you are a landlord planning to pass your property portfolio down to your children or other family members, buying property through your limited company would be a great way of avoiding large amounts of inheritance tax by making family members shareholders of your limited company.

What are the drawbacks of buying property through a limited company?

The main drawback you may face is finding a suitable lender.  The majority of buy-to-let lenders will not lend to limited companies and if they do, they will often want the directors of the company to enter into a personal guarantee.

On the subject of Stamp Duty Land Tax (SDLT) Purchasing residential property through a company attracts a 3% charge above the standard rate and non-resident companies will pay a further 2% surcharge.

Process

It is important to seek advice from your tax advisor on any tax implications, but you will still need a solicitor to advise and guide you through the legal process. Phillips Law has a wealth of experience acting for and assisting clients though the complexities of acquiring property through a limited company and we would love to assist you through your process.

For more information, please contact Matthew Morris-Ashton | 01256 854602 in our Commercial Property Team.