Questions and Answers
Why would I buy a property through a company?
I want to expand my investment in property with a view to making it my main job. I am wondering whether setting up a company to do this would be the best way as the corporation tax rate is lower than the income tax rate. Is this true?
By Catherine Heinen, FCCAThere are pros and cons of buying a property through a company, and it may be that there is no clear answer one way or the other.
The decision will come down to several factors, including:
- How much income and profits you’ll make from the properties
- How much you personally need each month as income
- How many properties you already own
- Whether the properties are mortgaged
- Whether you have other (non-property) income and how much
As well as knowing the pros and cons below, it is always worthwhile having a discussion with a professional. Your accountant will be able to sit down with you and go through your individual circumstances and provide some tax estimates to help you decide.
Tax liability
While the corporation tax rate is lower, you will personally be liable to income tax and potentially National Insurance on the income you take from the company, as either a salary or dividend. Therefore overall, the tax liability may not be lower when owning a property through a company.
Furthermore, the income and any profits will be the company’s and not your own. You cannot take money as you wish, so if you are hoping to use rental profits as your main source of income then the company business structure may not be the best option.
If you are investing in the longer term and do not require the income from the properties, keeping it invested in the company will mitigate your income tax liability. By owning the properties personally you will be taxed on all profits as they arise.
Relief of finance costs
When owning property personally, you are unable to claim mortgage interest as a deduction against income for tax purposes. When owning a property through a limited company, mortgage interest is 100% allowable.
Accessibility to mortgages
Owning a property personally may give you access to a greater choice of mortgages. Sometimes properties owned by companies also have lower borrowing limits.
Stamp Taxes
When owning a property through a company, you will pay higher rates of stamp taxes on purchase and the company may be liable to Annual Tax on Enveloped Dwellings (ATED).
Changing property ownership
If you already own several properties personally, it is not simple to move them into a company. You will need to sell them to the company, incurring fees including stamp duty/land tax, legal fees and potentially a Capital Gains Tax liability.
Read our article for further tips for managing multiple rental properties.
TaxAssist Accountants can help you with your property portfolio
TaxAssist Accountants are experts in tax and we deal with lots of landlords who own their properties in a variety of ways. Call us today to arrange a free consultation on 01257 277 999 or use our online contact form.
Frequently Asked Questions
If you have sold a property, or are thinking of selling a property, you may need to report this to HM Revenue & Customs (HMRC) and pay Capital Gains Tax (CGT). Properties used solely as your main residence are unlikely to have a CGT liability and the sale probably won't need to be reported to HMRC. However, if the property was rented out you may need to take action. If you are a UK resident and there is a CGT liability on the property sale you will need to report this to HMRC within 60 days of completion. If you are non-UK resident, you will need to report the sale to HMRC within 60 days of completion whether there is a CGT liability or not. Speak to an accountant who can calculate your CGT liability, look at tax reliefs and prepare your report to HMRC.
Yes, if you lived in the property as your main residence and let it out, you can claim both Private Residence Relief and Letting Relief.
Date published 27 Mar 2024 | Last updated 18 Oct 2024
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
Catherine Heinen, FCCA
Catherine is a Technical Content Writer at TaxAssist Accountants, and a qualified accountant. With experience working at two accountancy practices in the UK top 50 accountancy firms according to Accountancy Age, Catherine has significant experience in accounts, tax returns and advising clients. Catherine ensures businesses, business owners and individuals are kept up to date and informed by providing concise and informative technical material.
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