Purchasing Property Through A Limited Company

With changes to tax regulations affecting multi-property owners over the last few years, it’s become increasingly difficult to make investment properties financially viable. While we understand why the government has made these changes, we still need landlords and rental properties!

When purchasing investment properties, it’s worth considering the benefits of buying through a limited company.  Paul Shorten, an Independent Financial Adviser from Blacktower Financial Management Ltd shares the key advantages and disadvantages. 

Traditionally, only a minority of property investors would purchase a house through a limited company, with many being directed down this route by their accountants. This has drastically changed over the last few years in response to the changes to mortgage tax relief. Let’s explore this in more detail.

If you are a higher-rate taxpayer with an investment property owned personally rather than through a limited company, you could be liable for 45% annual tax charges on your rental income, regardless of whether or not you have a mortgage. In contrast, rental income through a limited company structure would be liable to corporation tax, currently 19%.

So the tax saving is significant on income from rental properties owned via a limited company as opposed to personally. But there are other factors that must be considered.

Placing a property within a limited company structure could also help with minimising inheritance tax (currently 40% on assets over the inheritance tax threshold). With some clever structuring and the use of shareholders within the company, you reduce or even eradicate this tax implication.

Benefactors would already own part of the limited company so the inheritance tax due would in turn be reduced. It’s important to note that ownership of shares and control of the company are two different things. For this reason, putting properties into a limited company is often seen as beneficial to putting them into a trust.

As with all financial planning, there are advantages and disadvantages to buying properties via a limited company structure and careful consideration is needed based on your personal circumstances.

  • Cost and time. There are cost and time implications to running a limited company
  • Accounts. You may require detailed accounts, which may in turn require the support of a professional accountant
  • Mortgage rates. If mortgaging the property, you’ll need a lender who will offer a mortgage to a company structure rather than a personal borrower. Many lenders charge higher interest for limited company structures than individual buyers
  • Additional tax. If you want to draw income from your limited company you will need to declare this as a divided; subject to tax from 8.75% to 39.35%. It is key to manage the frequency and amount of money accessed in order to best manage the potential tax implications.

If you already own an investment property or properties as an individual, you may now wish to transfer it/them into a limited company structure to leverage the tax benefits. This is of course possible; however, it does come with additional financial implications:

  • Capital Gains tax

If you do not set up the limited company at the outset, you will need to sell the property to your limited company. At this stage, you could be personally liable for capital gains tax (CGT) of up to 28% on the increase in the property value since originally purchased.

However, once owned by the limited company, there will be no CGT on the sale of the property at any stage in the future*.

  • Stamp duty

Stamp duty would also be applicable on the repurchase of the property by the limited company. Anyone buying a second home is subject to an additional 3% charge on the rate of stamp duty owed.

Depending on the size of the property portfolio involved, a limited company structure could bring substantial tax savings on your rental income. However, as with all financial planning, it is important to seek the services of an Independent Financial Adviser in order to establish the right options for you, your portfolio, and your objectives.

* Rules and regulations change all the time and there are alternatives even to the above. Speak to a good Independent Financial Advisor for more information.

Photo of Paul Shorten and Black Tower Financial Management Logo

For more information and/or independent financial advice, please contact:

Independent Financial Adviser

Blacktower Financial Management Ltd.


This article is for information only and should not be seen as advice or recommendation to act. If you wish to take action, please seek Independent Financial Advice first.

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