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Your Easy Guide to Buying Property with a Limited Company

Getting a mortgage with a limited company
mortgage advisor in Birmingham

The Advantages, Disadvantages, and Debunking Myths

Understanding Property Ownership through a Limited Company with Ape Finance your mortgage advisor in Birmingham.

Whether you are a landlord with multiple buy-to-let properties generating rental income or someone looking to acquire a residential property or second home for personal or business purposes, you have the option to purchase through a limited company. Here's a comprehensive guide on how this process works and essential considerations to keep in mind.

Advantages of Buying Property through a Limited Company:

  • Tax Benefits: Purchasing property through a limited company can offer significant advantages in terms of tax on your buy-to-let earnings. As an individual homeowner or residential landlord, your rental income profits are subject to income tax, which can be as high as 45%. However, with a limited company, your profits are taxed under Corporation Tax, currently at a lower rate of 19%, leading to substantial potential savings.

  • Tax Planning: Property ownership through a limited company allows you to maximise tax-free benefits and explore options like limited liability partnerships (LLPs), reducing your overall tax liability. Additionally, transferring limited-company-owned properties to family members can be done without incurring inheritance tax, provided they are shareholders in the business.

  • Mortgage Relief: While private landlords can no longer deduct mortgage interest charges from their rental income due to changes in UK tax law in 2017, limited companies can still count mortgage interest as a business expense, reducing taxable profits.

  • Risk Management: Property ownership through a limited company generally exposes you to less personal financial risk. Your liability is typically limited to what the company owns and the risks it has taken, protecting your personal assets in case of unforeseen issues.

Potential Challenges of Buying Property through a Limited Company:

  • Administration: Owning property through a limited company involves additional administrative responsibilities, including filing annual accounts and tax obligations. The extent of administrative tasks may increase with the number of properties you own through the company, so it's important to weigh the cost and benefits, especially if you plan to own just one or two properties.

  • Transfer Challenges: Transferring property between an individual and a limited company is not a straightforward process. It often involves selling the property to its new owner at market value, incurring additional costs such as stamp duty, Capital Gains Tax, and legal fees.

  • Taxation on Withdrawn Profits: Accessing profits from a limited company requires paying a salary through the company, which is subject to taxation as taxable income. Proper tax planning, possibly in consultation with a financial advisor or accountant, is essential to ensure tax efficiency.

How to Purchase Property through a Limited Company:

The practical steps for buying property through a limited company depend on your current situation:

  • Buying through an Existing Limited Company: If you already have a limited company and plan to purchase property through it, you might face challenges finding a lender, as many buy-to-let mortgage providers do not lend to limited companies. When they do, they may require personal guarantees from company directors, which could increase your personal risk.

  • Setting Up a Limited Company with Existing Property: If you own property and intend to expand your buy-to-let business by forming a limited company, you will need to sell your existing properties to the new company. This transaction involves tax implications, including capital gains tax.

Common Myths and Misconceptions:

Purchasing property through a limited company is not a one-size-fits-all solution. It's a complex financial decision that requires careful consideration. Some misconceptions to avoid include:

  • It does not entirely eliminate taxes.

  • It does not necessarily save time, given the added administrative requirements.

  • It does not guarantee immediate financial success.

If you're new to property investment, thoroughly research the details of buy-to-let ownership, including associated costs. Remember that buying through a limited company is a long-term financial decision that can be profitable, especially for landlords with multiple properties. This approach has gained popularity since the 2017 changes to taxation for buy-to-let owners.

For expert guidance and support with mortgages, administration, legal matters, and more, turn to Ape Finance.


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