Should you buy a property through a Limited Company

One of the key reasons to consider using a limited company as a buy to let property investor, rather than purchasing the property personally is tax. A UK limited company has a corporation tax liability of 19% of profits. For those owning a property personally, rental income is classed as personal income. Most buy to let landlords either own the property and are employed or own more than one property and use the rental profits as their personal income. This means that that the rental income is likely to be taxed at either 45% for those with an additional income, 40% as a higher rate taxpayer.

In addition to the personal tax savings, the tax saving offered previously afforded to personal landlords for mortgage interest relief has changed drastically. It is now only possible for personal landlords to reduce their tax liability by 20% on mortgage interest costs for buy to let properties.  A limited company in contrast, can offset all of the mortgage interest as an expense to the business.

Another reason landlords choose to use a limited company to own the property is to minimise their risk. Should a legal case be brought against you by a tenant as a sole entity (i.e. owning the property personally) you are fully liable for any awards made by the court. This leaves personal assets at risk, including your own home. By using a limited company, the assets of the company are at risk, but personal assets are secure as long as a personal guarantee has not been entered into.

Using a Limited Company to own your property could also reduce your loved ones’ Inheritance Tax liability as you could make your chosen heirs’ shareholders of the company.

At the moment there has never been a better time to purchase a buy to let property as the UK as the government announced in July that a Stamp Duty Land Tax (SDLT) ‘holiday’ would be in place for properties under £500,000 until March 2021. It was also confirmed that this SDLT exemption would be available for limited companies as well as individuals. 

We can help you with your Company Formation, both in the UK and Offshore as well as assisting with your Banking, Accounts, VAT and PAYE.

Think Formations are not Tax Advisors and we would encourage you to seek advice from a Tax Advisor in relation to the matters addressed herein.

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