As an investor exploring property options in the UK, you’ve likely encountered the possibility of buying property through a limited company. For many buyers, especially those looking to build a property portfolio or invest from overseas, the decision to buy a property through a limited company is appealing and logical. However, you must consider several factors, including tax planning, before determining if buying through limited companies is right for you.
This guide provides an in-depth look at the key benefits and drawbacks of purchasing UK property through a limited company versus personally. At Baron & Cabot, we understand the importance of quality research when investing in high-value assets like property. Hence, we’ve taken the time to explore everything from tax implications on limited companies and financing options to management responsibilities and exit strategies.
At the end of this guide, you’ll clearly understand which route aligns with your investment goals and risk tolerance. The decision ultimately comes down to your unique situation and needs. You can choose the most strategic and profitable way to invest in UK real estate with the correct information and advice, especially when buying property.
Short Summary
- Buying property through a limited company offers lower corporation tax rates and potential capital gains tax savings, which can be advantageous for high-earning investors and those building a property portfolio.
- There are increased administrative costs, complex legal obligations, and potential restrictions on mortgage interest relief when using a limited company for property investment.
- This strategy is beneficial for investors looking to reduce their tax burden and protect personal assets but requires careful alignment with individual investment goals.
- A limited company structure is generally more suited for buy-to-let properties rather than personal residences.
An Introduction Into Buying Property Through a Limited Company UK vs. Buying Personally
When purchasing a property, one of the most significant decisions you’ll make is buying property through a limited company in the UK or personally. Both options have advantages and disadvantages, so you must weigh them carefully based on your investment goals and tax situation.
Buying property through a limited company UK, like an LLC or Ltd, allows for certain tax benefits, lowering your tax bill and rental income. Limited companies can deduct expenses like mortgage interest, property taxes, and repairs to lower business expenses, pay tax, bills and offset any rental income. Your capital gains tax allowance bill may also be lower when you sell the property.
Additionally, you can avoid inheritance tax by making your family members the company’s shareholders.
However, the company’s profits and rental income are subject to Corporation Tax by the UK Government. It must pay Corporation Tax on its annual profits. Also, setting up and administering limited companies requires time and money.
Purchasing personally means you won’t pay Corporation Tax, and you can avoid administrative hassles, but you’ll lose the tax deductions and other benefits. Capital gains and rental income are taxed at higher personal income rates. You’re also personally liable for any debts, like the mortgage payments.
UK residents—significantly higher rate taxpayers when compared to other countries like the US and UAE—may enjoy significant tax savings on their tax bills when they consider a limited company for property investment (1, 2). However, basic rate taxpayers purchasing a moderate buy-to-let property may find buying personally simpler and more affordable.
In summary, weighing the pros and cons of each option based on your investment objectives and consulting UK property investment experts can help determine the most suitable and cost-effective approach, allowing you to buy confidently.
Tax Implications of Property Investment via a Limited Company
As an investor, it’s essential to consider the tax efficiency and recurring tax on purchasing property through a limited company structure.
There are several factors to weigh, as outlined below:
- Corporation Tax vs. Income Tax
- Capital gains tax
- Stamp Duty Land Tax
- Restrictions on Interest Relief
- Additional Accounting Requirements
1. Corporation Tax vs. Income Tax
Profits made through limited companies are subject to Corporation Tax, which currently sits at 25% for profits above £250,000 and 19% for profits below £50,000. Companies that earn within these two limits pay tax at the main rate of 25%, albeit reduced by a Marginal Relief.
This is lower than the higher Income Tax rates of 40% for individuals earning £50,271 to £125,140 or Additional Income Tax rates of 45% for an income of over £125,140. Individuals have to pay Income Tax; however, the tax rates can change over time. You must stay updated on the latest Corporation Tax and Income Tax regulations to maximize your tax savings.
However, for the tax year 2024/25, individual Income Tax rates in England, Northern Ireland, and Wales are:
- Personal Allowance: 0% on income up to £12,570.
- Basic Rate: 20% on income from £12,571 to £50,270.
- Higher Rate: 40% on income from £50,271 to £125,140.
- Additional Rate: 45% on income over £125,140.
These thresholds have remained unchanged from the previous tax year.
Note: Profits from a limited company distributed as dividends are taxed again at the recipient’s marginal Income Tax rate. Whereas the companies pay Corporation Tax whether the profits are distributed as dividends or not.
You can decide if you want to pay Income Tax or Corporation Tax when deciding on property investment through a limited company.
2. Capital Gains Tax
Any gain is subject to a capital gains tax allowance of 25% when a limited company sells a property. The maximum Capital Gains Tax rate for individuals is 28% for residential property. However, the annual tax-free allowance for individuals is higher. Moreover, your tax liability may also be lower when you sell the property.
3. Stamp Duty Land Tax
Purchasing a property worth £40,000 or more through a limited company means paying the higher Stamp Duty Land Tax (SDLT) rates of 3–15%. This additional cost should be weighed against any potential tax savings and the overall tax burden.
- Restrictions on Mortgage Interest Relief
Individuals can no longer deduct all mortgage interest from rental income before calculating tax; instead, they receive a 20% tax credit on interest payments. Limited companies, however, can still deduct full mortgage interest as a business expense, potentially offering tax efficiencies.
5. Additional Accounting Requirements
Limited companies have more complex account filing requirements, including submitting audited accounts and annual and Corporation Tax returns. This typically incurs higher accounting fees, which should factor into your calculations. However, with a trusted partner like Baron & Cabot, you don’t need to go through the stress of planning your tax returns or setting up an LLC to cut costs — we handle it all for you, ensuring full tax compliance.
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In summary, while a limited company structure may offer certain tax benefits, such as income, capital gains, and inheritance tax benefits, such as income, capital gains, and inheritance tax benefits for high-earning investors, additional costs and complexities must be considered. Speaking with a tax professional or property investment specialists like Baron & Cabot can help determine the right approach based on your unique financial situation and investment goals. Nonetheless, you can always be sure of huge savings on your taxable income if you buy a property through a company
Legal Considerations When Purchasing Property Through a Company
There are several legal aspects to purchasing properties in the UK through a legal entity such as a corporation, and they include the following:
- Legal structures
- Conveyancing process
- Ongoing responsibilities
Legal Structures
You must establish an appropriate legal framework and legal structure when purchasing property through a limited company. The two most common options are a limited liability company (LLC) or a limited partnership.
An LLC provides liability protection for the owners, while a limited partnership.) designates general and limited partners with different levels of liability and control. You must file the appropriate formation documents with Companies House and pay the required fees.
Conveyancing Process
The conveyancing process for investors who choose to buy a property through a limited company is more complex than when purchasing personally due to additional legal requirements. You must appoint a solicitor to oversee the legal transfer of ownership and handle the necessary paperwork. They’ll conduct searches to ensure no issues with the property title or surrounding land.
Additional due diligence is required to verify the company owners and directors. Transferring the property into the company’s name will also require filing a transfer deed with HM Land Registry and paying the applicable stamp duty land tax.
Ongoing Responsibilities
As a company director, you’ll have specific ongoing responsibilities and legal obligations to fulfil. You must keep records of all company assets, liabilities, income, and expenditures. Annual accounts and a confirmation statement need to be filed with Companies House.
You may also need to submit quarterly VAT returns and payroll taxes if the company has employees. And you must repay any mortgages or loans if the company borrows money to finance property purchases. Failure to meet these responsibilities can result in penalties.
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Buying investment property through a limited company can provide tax and legal benefits for landlords and investors. However, the additional administration and compliance obligations require time and resources to manage properly. We advise you to employ the service of UK property investment experts like Baron & Cabot. This will save you time to focus on other work, as they’re more experienced and can ensure you’re not breaking any rules.
Financing Options When Buying a Limited Company Property
You may wonder if your financial planning options are limited when investing through a limited company compared to buying individually. The good news is that several funding avenues are available.
As a property investor, you should explore these options to determine the best approach for your investment goals:
- Cash purchase
- Interest-only mortgage
- Repayment mortgage
1. Cash Purchase
A cash purchase is a financial strategy that allows you to buy the property outright without needing a mortgage if you have sufficient cash reserves. Cash purchases allow you to avoid interest charges and pay off the property immediately. However, it also ties up your capital in a single non-cash asset. For most investors, a cash purchase isn’t the optimal strategy unless they already own a high value of liquid assets, especially for a basic rate taxpayer.
2. Interest-Only Mortgage
With an interest-only mortgage, you’ll pay only the mortgage interest charges on the loan each month, while the principal amount is paid later – either as subsequent payments or as a lump sum. This results in lower monthly payments, freeing up your capital. Interest-only mortgages carry more financial risk but can be a good option if you intend to sell or refinance the property before the term ends.
3. Repayment Mortgage
A repayment mortgage is the most common type of mortgage, requiring you to pay mortgage interest and a principal amount each month to repay the loan over the mortgage term fully. Repayment mortgages provide more financial security but higher monthly payments. The exact terms will depend on factors like the loan-to-value.) ratio, interest rate, and length of the mortgage.
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You always have options to finance a limited company property purchase with varying levels of risk and reward. Analyse your investment goals and risk tolerance to determine if an all-cash purchase, interest-only mortgage, or repayment mortgage is the most suitable choice for your limited company property investment.
The team at Baron & Cabot can guide financing and facilitate the mortgage process on your behalf to simplify your investment, whether buying property through a company or individually. We offer a straightforward process for property investment.
Typically, a £5K reservation fee and a 20% downpayment are required for most of our developments, with the remaining 80% payable upon completion. While this allows for manageable initial investment, it’s important to consider potential risks such as market fluctuations and financing challenges.
Our team can guide you through these factors to help you make an informed decision. And you can be sure of stable long-term returns without having to go through the hassle of starting a limited company all by yourself.
Should You Purchase Property via a Limited Company?
Having understood what’s at stake when opting for property investment through a limited company as part of your investment strategy, let’s see if it’s the right choice for you by considering the below factors:
- Tax implications
- Financing
- Anonymity
- Administration
Tax Implications
When purchasing property through a limited company, you enjoy many tax planning and tax efficiency benefits that can drastically boost your overall gain. As a company, the business will be liable for Corporation Tax on any profits from the property, which—as we’ve mentioned earlier—is much lower than individual higher tax rates. Given the considerable returns on property investments, you’re more likely to pay higher tax rates as an individual, so it’s more intuitive to cut this cost by up to 20% as a corporation for tax efficiency.
Note: Profits from a limited company distributed as dividends are taxed again at the recipient’s marginal Income Tax rate.
And what better approach to ensure these benefits than employing the service of experienced property experts?
You won’t only have the benefits of an LLC, but you’ll save yourself much more time. Namely, we’ll assist with scouting for the best property, filing tax returns, and ongoing maintenance.
Financing
There’s also no difference between a company obtaining a mortgage and an individual doing the same. You’ll still be subject to the same rules, so taking the more profitable route is intuitive.
In addition, the liability for the loan is limited to the value of the company’s assets. Your assets are protected should the company default on the mortgage. What’s more, purchasing property via a limited company may open up more financing options from commercial lenders and residential mortgage providers, providing greater financial flexibility.
However, taking a mortgage to finance a property as an individual or an LLC is a tedious and confusing process. This is why many investors opt for our services — we only require a 20% deposit and a £5K reservation fee. Get in touch now to get started.
Anonymity
Buying property through a limited company is not the best option if you’re conscious of privacy concerns and publicly available data. The details of company directors are filed with Companies House and are publicly searchable. If you want to remain anonymous when buying a property in the UK, you should contact the services of UK property investment experts for the best advice. Contact Baron & Cabot for a free consultation on your property investment options.
Administration
There are additional administrative responsibilities and an increased administrative burden involved with managing property through a limited company. Annual accounts and tax returns must be filed, and company records must be appropriately maintained. Official documents (like minutes of board meetings) may need to be recorded.
Although accountants and company formation agents can assist with many of these obligations, costs can range from a few to several hundred pounds per year, depending on the complexity.
While bookkeeping can be complex, many investors—particularly non-UK residents—find a limited company structure more beneficial for more extensive portfolios. Analysing your investment goals and priorities can help determine if this route is ideal for you. Still, you can enjoy all the benefits a limited company offers while saving time and money when you make Baron & Cabot your investment partner.
Frequently Asked Questions
Can I set up a Ltd company to buy a property?
Yes, you can establish an Ltd company to purchase property in the UK, and choosing the right legal structure is crucial. Setting up a limited company, referred to as an Ltd company, is a straightforward process that can be done through an accountant, a company formation agent, or property investment experts like Baron & Cabot. The company will have its legal identity separate from the individual shareholders and directors, making it a separate legal entity.
How much deposit do I need to buy a property through a limited company?
When purchasing a property through an expert like Baron & Cabot, you typically need a minimum 20% deposit as a financial requirement. Some mortgage lenders may require 25% or more. The deposit amount will depend on the lender, your credit score, and the property itself.
Can I buy a property through a limited company and live in it?
Yes, it’s possible to purchase a residential property through a limited company and live in it, but there are tax implications and liabilities to consider. If the property is occupied by a shareholder or director of the company, it’s classified as a “dwelling house” by HMRC. When the property is sold, the limited company will be subject to an Annual Tax on Enveloped Dwellings (ATED) and potential Capital Gains Tax (CGT) charges. For most property investors, purchasing through a limited company only makes sense for buy-to-let investments, not the property you intend to occupy yourself.
The option to buy a property through a limited company in the UK can be an attractive one for property investors. The tax benefits can significantly increase your cash flow and profits over the lifetime of your investment. However, it does come with additional responsibilities and costs to consider.
Analysing your specific investment goals and situation is critical to determining if purchasing via a limited company is right for you. If appropriately structured, buying through a limited company can be a powerful way to build your property portfolio and wealth for the long term. And if you’re not willing to go through the hassle but still want to enjoy the benefits of purchasing your properties through a limited company, contact the Baron & Cabot team to discuss your investment journey.
