Buying Property through a Limited Company


Buying Property through a Limited Company

Have you wondered if you could or should set up your own property company for your property investments?

You may already own or may be interested in purchasing commercial property or residential property for buy to let purposes. Would you be better purchasing in your own name or through a company?

There are a number of factors to consider:

What are the taxation implications?

This is one of the most significant considerations. Profits from properties held personally will be regarded as income and taxed at the prevailing rates for personal income. For higher rate taxpayers, this will mean a taxation rate of 40% or possibly 45%. Company profits will be subject to Corporation Tax, currently 20%. Profits withdrawn as dividends will still be subject to tax, but if you do not need the additional income, you have options. For example:

  • funds could be left in the company to be withdrawn at a time to suit you
  • funds can be accumulated for future purchases
  • dividends can be paid to shareholders who have low incomes in order to minimise additional taxation.

Will a company be able to borrow money?

The liability of a company is limited, so this makes lenders more reluctant to lend. There are fewer lenders in this area, but those who do lend will often charge a company a higher interest rate. In addition, they are not usually prepared to lend as much on a loan to value (LTV) basis as lenders dealing with individuals. A lender to a company is also likely to require guarantees from directors of the company.

However, mortgage interest paid by the company will be an expense of the business which can be offset against profits. This used to be the case for individuals, but this allowance is being phased out, and will disappear completely by April 2020.

How do I set up and manage a company?

A company will need to set up – this is a quick and simple process as companies can be bought “off the shelf”. Companies are required by law to file annual returns and accounts with Companies House. An individual will need to keep accounts for self-assessment purposes. However, the additional administrative burden associated with Companies House filing requirements does add cost and expense.

If you own property in your own name, is it worth transferring it to a company?

Transferring existing properties will come at a cost. The transfer will trigger liability for capital gains tax, and the transfer will also be subject to Stamp Duty Land Tax. If you already have mortgages, you will also need to consider the refinancing costs – any existing personal mortgages will need to be replaced by commercial arrangements, which is likely to mean arrangement fees and higher interest rates.

If you own properties outright or owe very little to lender, it is unlikely to be cost effective to transfer properties, particularly if you have owned them for many years.

By contrast, if you already pay a high rate of tax and/or have borrowed heavily to fund a property portfolio, it may be worthwhile considering the advantages of transferring the property into a company. You should take specialist tax advice to compare the amount of tax that will potentially be payable and against your potential future savings.

Free initial discussion

After that, it may come as a relief to know that if you wish to transfer any properties, we can guide you through the legal documentation and the legal fees and associated costs will be modest! Getting in touch with us could not be easier. Simply give us a call for a free, no obligation initial discussion on 0161 929 0121 or complete the online enquiry form on this page to allow a member of our legal team to contact you.




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