19 Oct 2022
Buying a Rental Property Through a Limited Company
There are many reasons why people choose to buy property beyond the most obvious which is to live in it. One of the main reasons for purchasing is to buy a rental property as an investment but there are of course a range of considerations before taking the plunge.
Something to think about is how to buy it and an increasingly popular option is to do so through a limited company.
Primarily this growth in purchasing via a company that is listed as limited has come about due to the changes in mortgage tax relief rules.
Of course, this route may not be suitable for everyone: smaller landlords, for example, those with just one property and those in the lowest income bracket may not benefit as fully from setting up a limited company, especially individuals who already own the property where they would require to sell the property to the company which could incur stamp duty.
In addition, running a limited isn’t for everyone and some people might prefer to simply own an investment property personally.
There are of course pros and cons to either owning an investment property through a company or doing so personally.
Pros
- Profits and Capital Gains taxed at 19% Corporation Tax rate
- Companies are not subject to the restrictions on relief for interest and finance costs that apply to individuals
- Companies can usually carry forward expenses and losses to a later period more flexibly than an individual
- Family members can be more involved through becoming shareholders and directors, resulting in potential Inheritance Tax and Capital Gains Tax benefits
- Potentially no extra higher rate personal tax
Cons
- Less mortgage choice and higher interest rates
- Increased compliance costs
- No Capital Gains allowance
- From 1 April 2023, there is an increase in the Corporation Tax rate to 25% in the main rate of Corporation Tax and the introduction of a 19% small profit rate of Corporation Tax for companies whose profits do not exceed £50,000
- Any personal use of properties owned by the company, by the investor or their close relatives, may have severe tax consequences
Ultimately, as with all financial planning decisions, it is wise not to make any hasty decisions and obtaining advice from your independent property or letting agent, as well as an independent financial adviser, could save you a great deal of time and money.
Adrian Sangster, Leasing Director, Aberdein Considine said: “We live in what is an uncertain world and when it comes to financial planning it can be a complex area to navigate.
Choosing to invest in rental property can be a very secure investment but there are also risks you need to consider. It’s therefore vital that you take appropriate advice before making any decisions which could affect your current or future financial security.”