Should I buy a property through a limited company?
If you are a business owner, a contractor, or independent professional operating via a limited company, you may have considered buying a property through your business.
We get asked this question regularly, so we thought we would list the advantages and disadvantages in this blog to help clear up your queries. However, we strongly advise asking a professional for guidance before taking action.
Advantages of buying a property through a limited company
– You could potentially reduce your tax bill
If you choose to invest in a property using a limited company, the profit you make will be liable to Corporation Tax. Whereas, if you own a property as an individual, the profit you get from rent will be taxed as income tax, alongside your other earnings.
Therefore, if your income tax is at 40% or higher, this could make a huge difference to the amount of tax you pay, as the Corporation Tax rate is currently 19%.
- All of your profits from the property (after tax) can be kept in the company and used to reinvest.
- There is no mortgage interest relief restriction
- Profits can be distributed more flexibly as a dividend to shareholders
- Access to better loans
By showing that you have a strong portfolio of investment properties and a well-managed limited company behind it, creditors are more likely to offer good rates when applying for loans.
Also,,if you were planning to buy a property through your existing trading company, you may jeopardise certain tax reliefs that come with trading companies, so you may want to keep your buy-to-lets in a separate investment company.
Disadvantages of buying a property through a limited company
- You might struggle to find a suitable lender
It’s important to note that some buy-to-let lenders may not lend to limited companies.
- There may be higher interest rates and lower loan to value ratios
- There is additional personal tax to pay when taking money out of a company
Before you make your final decision; you need to determine:
- How much income you may earn now or in the future
- Review the tax opportunities of buying the property through a limited company, whether you need to live off the property income and decide on your long term investment plans.
- If buying a property through a limited company is something that you have been considering it is important to compare your long term goals as an individual and as a company
We can help you to assess your individual situation and will offer advice and guidance that’s right for you.
To view our other latest blogs please click here
