In recent years, more UK investors have chosen to buy property through a Limited Company rather than in their personal name. This shift is largely due to changes in tax legislation and the growing awareness of how corporate structures can influence profitability. But is it the right move for you?
Let’s break down the advantages, drawbacks and key considerations so you can make an informed decision.
1. Why Limited Company Property Investment Has Gained Popularity
Until a few years ago, most landlords purchased buy-to-let properties in their own name. However, the Section 24 tax changes reduced mortgage interest relief for individual landlords, significantly impacting profits.
A Limited Company (often set up as a Special Purpose Vehicle, or SPV) allows you to offset mortgage interest against rental income – something individual investors can no longer fully do.
2. Key Advantages of Buying Through a Limited Company
- Full Mortgage Interest Deduction
Unlike personal ownership, companies can deduct the full cost of mortgage interest before calculating profits, lowering the overall tax bill. - Lower Corporation Tax Rates
Corporate profits are taxed at 19-25% (depending on thresholds), which may be lower than the 40-45% higher-rate personal income tax bands. - Easier to Grow a Portfolio
Reinvest profits within the company without paying personal tax until funds are withdrawn. - Estate Planning Benefits
Company shares can be transferred to family members, potentially reducing inheritance tax exposure.
3. Drawbacks and Considerations
Higher Mortgage Rates
Limited company buy-to-let mortgages can have slightly higher interest rates and fewer lender options.
Additional Costs
Expect higher accountancy fees, incorporation costs, and annual filing requirements.
Capital Gains Tax (CGT) on Transfers
If you already own property personally, transferring it into a company could trigger CGT and stamp duty.
Personal Tax on Withdrawals
If you take profits as dividends, you’ll pay dividend tax – so the benefit depends on whether you reinvest or withdraw profits.
4. Who Should Consider a Limited Company Structure?
This route often makes sense if:
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You are a higher-rate taxpayer.
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You plan to hold multiple properties long term.
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You intend to reinvest profits rather than withdraw them immediately.
It may not be ideal if you own just one property or require the rental income for day-to-day living.
Buying property through a Limited Company can offer significant tax and growth advantages, particularly for higher-rate taxpayers building a long-term portfolio. However, the setup costs, mortgage rates, and potential tax implications mean it’s not a one-size-fits-all solution.
Before making the switch, speak with a qualified accountant and mortgage broker experienced in property investment structures.
At Kapital, we help investors identify the most effective strategy for building wealth through property. If you’re considering the limited company route, our team can connect you with trusted tax advisors and lenders to ensure your investment is set up for success.
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