Buying residential property through a limited company

 

There are several ways to buy property, and buying property through a company is a popular choice, with its own set of advantages and disadvantages. It’s not surprising, then, that so many people ask the question, can a business buy a residential property? Buying a house through a limited company might just be the perfect way to get where you want to be. Here’s what you need to know.

Can a Business Buy a Residential Property?

Can I buy a residential property via my Ltd Company? And should I buy property through a limited company? The only way to make a really good decision is to be armed with all the facts. There are pros and cons, and we’ll cover them in this article. Limited company buy-to-let property investment is just one of the reasons why companies might consider purchasing residential property. The changes in mortgage tax relief that we’ve seen over the past few years is another reason why to buy property through limited company is a great idea. Like most financial decisions, at the end of the day it depends on a number of factors.

Benefits of Buying Property Through a Limited Company

There are some fantastic financial advantages to buying a house through a limited company. The main reason for buying property through a company is tax efficiency. As a higher rate taxpayer letting a property as a private individual you pay as much as a painful 45% tax on your rental income. Do it as a limited company and your corporation tax bill comes in at just 19%.

2017 saw mortgage tax relief rates gradually reduced. Now landlords can only claim basic rate tax relief at 20%, but it’s still well worth having. Then there’s limited liability. Buying a property as a limited company keeps it legally separate from your personal affairs, so you’re not personally liable for losses. There’s more in the shape of inheritance tax benefits. Buying a house as a limited company can minimise your family’s inheritance tax burden after you die, by making them shareholders in your limited company. Whichever way you choose to do it, it’s essential to get good financial advice.

Disadvantages of buying property through a limited company

There are also some real disadvantages to a limited company buying property. It costs money to set up and run a limited company in the first place, and it may prove time consuming. Detailed accounts, professional fees for accountants and lawyers, plus potential difficulties getting a decent buy-to-let mortgage rate, are all common hurdles to bear in mind.

Unless you set up the company before buying a property, you’ll have to sell your second home and repurchase it via the limited company. This can trigger capital gains tax when you’ve made money on the place. The current capital gains tax rate for residential property is 28% for higher rate taxpayers and depends on your circumstances if you’re a basic rate taxpayer. But it’s good to know there’s no capital gains tax when a limited company sells a property in the future – the profit you make falls under corporation tax. Don’t forget you’ll pay stamp duty on the repurchase and every second home comes with 3% extra stamp duty.

If you want to change the ownership of the property from a company, you may need to also change your mortgage, which can be time-intensive and expensive, including extra legal and valuation fees. And plenty of lenders apply bigger fees and higher interest rates to limited companies.

It also matters whether you’re a trader or an investor. If you’re buying to do up and sell for profit, you’re probably a trader, and you’d be better off setting up a property company. As an investor you also need to take care, weighing up the advantages and disadvantages of buying through a limited company versus doing it as a private individual.

Transferring property to a limited company

Transferring property to a limited company might seem like a sensible option, but there are a number of considerations to keep in mind. Your limited company might have to pay stamp duty and as much as 28% Capital Gains Tax on the difference between the purchase and sale price, and this could easily wipe out the savings you’ve made via tax relief. But if you run a buy-to-Let portfolio through a partnership, a transfer to a limited company could bring your tax burden right down.

If you want to pass your properties on to your family when you die, a limited company can be really useful for reducing inheritance tax. Sadly incorporation means your assets can be affected if the properties are sold, when the money would feed into the company then fall under the corporation tax umbrella before you take it out of the company – which can mean extra tax. As a rule, if you manage to reduce your tax in one way it’s likely the tax man will make up for it in other ways!

Will you buy property through a limited company?

Once you’re fully aware of the tax implications, the financial impacts, and the time you can spend arranging and managing everything, you’re in a good position to begin making really good, sensible, informed decisions around how to buy residential property for investment.