Buying Property Through a Ltd Company

If you’re considering a buy-to-let property investment, you may have wondered whether it would be worth buying the property through a Ltd company. In this article we explain why some consider this option, the pros and cons, and the tax implications.

Buying personally or through a Ltd company? What’s the difference?

To put it simply, the main consideration is tax rates – for rental income from property in your name as an individual, you would pay income tax, but for rental income from property owned by your Ltd company, the Ltd company pays corporation tax.

A limited company will also likely have to pay an annual standing charge, known as the Annual Tax on Enveloped Dwellings (ATED), on any property worth £500,000 or more. Whilst there are some exceptions to this, it is important that this is taken into account when making any purchases/acquisitions through a Ltd company.

By 2020, HMRC’s gradual reduction of tax relief on buy to let mortgage interest was fully in place, which meant that some individuals (mostly those on a higher or additional tax rate) were better off transferring the property investments to their Ltd companies.

Of course, this isn’t a one size fits all situation and it very much depends on individual circumstance; so an understanding of how each scenario works for you and how that impacts the tax you will owe is advisable before you decide.

Can you transfer property you already own to a Ltd company?

Yes, it is possible to transfer existing property to your Ltd company (if it’s an SPV – more on this below), bearing in mind that this is then in effect a sale from yourself to your Ltd company, and there will potentially be capital gains tax due, as well as legal and mortgage costs involved in this ownership transfer. The sale (if in England or Northern Ireland), will also be subject to Stamp Duty Land Tax (SDLT).

How would I go about buying a property through a Ltd Company?

When looking to mortgage the property, you may find that most lenders will prefer to lend to a Special Purpose Vehicle (SPV) – this is a company set up specifically for the sole purpose of the property’s buy-to-let activities. The mortgage would be in the Ltd Company’s name.

If the property is to be mortgage-free, it is possible for this to be purchased by your existing Ltd company should it have the available funds.

It’s also worth noting here the responsibilities when running a Ltd company such as the submission of accounts, corporation tax returns and other administrative duties. You can read more on the pros and cons of running a limited company here.

What are the advantages?

• Optimise tax efficiency – Paying yourself from your Ltd company profits can be done via salary, dividends or by making contributions to your pension scheme – sometimes a mix of these can ensure the greatest tax efficiency (see our salary vs dividends guide). Furthermore, for higher rate taxpayers that want to reinvest the profits, they can make tax savings with this method – having that income go to your limited company instead would mean 19-25% corporation tax is due as opposed to the much higher income tax rate.
• Mortgage relief – To calculate the Ltd company profit, the allowable expenses would be deducted. For Ltd company property owners, the mortgage interest payments are an allowable expense – for some this can be a large amount and so reducing the profit will in turn reduce the corporation tax due. For properties owned personally, mortgage interest cannot be claimed as an expense, and instead relief on mortgage interest payments is restricted to the basic rate of income tax (at 20% for 2024/2025). For any landlords already paying a higher or additional rate of tax on their personal income, this will mean they are paying a higher amount of tax. As the interest is used as a tax reducer and not an expense, it also means that your taxable income is higher, which can push you into a higher tax band or affect your child benefit entitlement.
• Increased flexibility – An option is to keep profit in the Ltd company to enable you to purchase a 2^nd property, which could increase the tax advantages even further.
• Inheritance tax – thinking ahead to whether your family or children will inherit your property, you can make them shareholders of the limited company making for an easier transfer, and there will be less inheritance tax to pay via the Ltd company route. However, if you’re considering looking into reducing your inheritance tax liability, an alternative to consider would be a trust – meaning the individual can continue to benefit from the profit but then transfer the property to their children in an efficient way. We would recommend speaking with your accountant on this matter to assess the best option for your circumstances.
• Reduced risk for you personally – with the property owned by your Ltd company as opposed to you, your financial risk is lessened should the worst happen and you fall into debt with property payments (provided of course you have at all times acted in good faith and adhered to your duties as a Director).

What are the disadvantages?

• Mortgage availability and rates – Not all mortgage lenders will provide mortgages to Ltd companies, you may have to find a specialist SPV lender. Furthermore, mortgage interest rates can be higher than those that would be available to you personally.
• No CGT allowance – When selling the property there is no capital gains allowance for a Ltd company.
• Running costs – as mentioned there are certain responsibilities that come with being a Ltd company director, one of those being the filing requirements for HMRC and Companies House, such as annual accounts, corporation tax returns, and confirmation statement. If you’re not confident working through this yourself you’ll need to enlist the help of an accountant.
• Restricted access to income – income to your Ltd company isn’t as instantly available to you as an individual – it’ll need to be drawn appropriately as employee/ director salary or shareholder dividends.
• Higher tax rates on the eventual disposal of the property – when you come to dispose of the property the company will pay corporation tax; the rate will be between 19-25% of the gain and will depend on the profit made. However, you will then also need to pay income/capital gains tax to get the remaining funds out of the company. It’s important that you consider your exit strategy and how this can affect the overall value of the investment.

Whether buying property personally or via a Ltd company, what’s best for you boils down to your income and how the tax will affect it. It can be the case that owning a property personally could be the best option; but if you have a high income, or more properties, then the Ltd company route could be a viable alternative. It’s advisable to speak with your accountant to discuss the best route for you.