10 Reasons Why to Buy Property Through a Limited Company

To be LTD or not to be…that is the question.
And something I get asked about every so often.
It’s also a question where there is no simple answer. But it’s something that has become quite a ‘thing’ in more recent times and property buyers who would otherwise never have much cause to venture into the world of incorporating companies, are having to get their heads around.
Before going any further, I must point out that I am not a tax expert and not qualified to give financial advice. If you are reading this article because you are considering buying property through a limited company or other vehicle, then you must consult a suitably qualified professional. I’m sharing this information based on my understanding of the current rules – but this shouldn’t be considered advice or any kind of recommendation.
OK, so that over with – why are people now buying in a limited company?
And the effect of changes in the rules on treatment of profits from property that were first announced back in 2015, and have been gradually phased in since then. Ignoring for now the surge in property transactions during the Covid pandemic – thanks in part to the Stamp Duty Holiday – reports suggest that 80% of new mortgage applications are now for limited companies. So this is a hot topic.
Ensuring you set up your property purchases within the right structure could save you thousands of pounds in tax over your lifetime, so here’s my 10 reasons why a purchase through a limited company should be considered.
  • 1.Mortgage Interest Relief

    Over the past few years, the amount that can be re-claimed on interest paid on loans (mortgages) on properties for private individuals has gradually been reduced. However, if you are borrowing money as a company, interest on any loans can still be offset against any income made by the company. It’s a complicated area – and what individuals are and aren’t allowed to reclaim is a bit of a headache, but the simplest thing to say is that any interest paid on a mortgage to purchase property through a limited company is fully tax deductible.
  • 2.Wear & Tear

    One of the major gripes of landlords over recent years has been the removal of the ability to claim for wear and tear on fixtures and fittings – so things like carpets and furniture in a rental property. This limitation does not apply if your are a limited company as it is considered a legitimate business expense.
  • 3. Taxation of Profits
    At the moment it looks like the level of corporation tax will be increased from the current 19%. However if you’re a higher rate taxpayer , then any news levels will still be less than what you’d pay on your personal income. So if you own your property in a limited company, the rental income is considered profits of that company and are taxed accordingly – whereas owning as an individual they are added to your other income (such as employment earnings) which could push you into the higher rate personal tax bracket.
  • 4. Mortgages
    Although the interest rate you pay on a mortgage through a limited company may be higher than on a personal mortgage (though not necessarily), the lending criteria that you have to meet, is likely to be different and based on the company’s finances and not your own. This could mean that you may be able to get finance not available to you if you were to apply as an individual.
  • 5. Inheritance
    There may be inheritance tax benefits from passing on property that’s held in a limited company than something that forms part of your personal estate.
  • 6. Limiting Your Liability
    You do still have responsibilities as a director of your limited company, but should something unforeseen happen that might otherwise cause a tenant to pursue you for damages personally, the liability falls with the company. This doesn’t give you an excuse not to provide a safe and secure home for your tenants – as a director your are legally obliged to do so, but it does give you a bit of peace of mind.
  • 7. Easy equitable Distribution
    If you’re buying jointly with another individual or group, owning the property in a company and then distributing shares is a very simple way to ensure a fair distribution of the liabilities, assets and future profits. In reality if a group of people wanting to buy properties together, would have to have an agreement drawn up by a solicitor to cover all eventualities.
  • 8. Protection from Creditors
    Buying in a limited company may offer you some protection from creditors – especially if you are developing land or property. If something goes badly wrong with your property or property development plans, unless you’ve given a personal guarantee on any loans or liabilities, creditors would only be able to look to assets of the company for repayment, not your own personal assets.
  • 9. Ability to Reinvest Profits
    When you own a property in your personal name, you need to pay tax on any profit you receive from that property, even if you are intending on using the profits to reinvest in more property. With a limited company, all of your profits (after corporation tax, which, as mentioned before, is lower than income tax) can be kept in the company and used to reinvest.
  • 10. Selling
    If a company is set up specifically for the purposes of holding property (sometimes called a Special Purpose Vehicle), then when it comes to selling the property, its just a case of selling the company which holds that property as its only asset and there may be financial advantages for the purchaser and the seller in doing it that way.

So, some pretty compelling arguments. But do bear in mind that running a limited company does come with some downsides. The costs, time and effort associated with running a limited company needs to be considered too and you may have more in the way of professional fees to pay (accountant and solicitor fees for example).