If you’re considering buying property through a limited company, you’re not alone. This strategy has become increasingly popular in the UK, especially among landlords, investors and business owners seeking to maximise tax efficiency and protect their assets.
The short answer is yes—a limited company can buy property. In fact, purchasing property through a company structure can offer several advantages. However, it also comes with specific considerations and potential drawbacks that you should understand before making a decision.
In this article, we’ll explain how limited companies can buy property, the benefits and risks involved and the steps to take if you’re ready to proceed.
Is It Legal for a Limited Company to Buy Property?
Yes, it’s entirely legal for a limited company to purchase property in the UK. A limited company is a separate legal entity, meaning it can own assets, enter into contracts and carry out transactions in its own name.
Companies typically buy property for the following purposes:
- Residential buy-to-let investments.
- Commercial property for business operations.
- Mixed-use properties that combine residential and commercial elements.
Before proceeding, it’s important to ensure the company’s articles of association (its governing document) allow property transactions as part of its business activities.
Why Buy Property Through a Limited Company?
There are several reasons why purchasing property through a limited company can be advantageous:
1. Tax Efficiency
- Corporation Tax Rates: Rental income from property owned by a limited company is subject to Corporation Tax (currently 19% to 25%, depending on profits), which is often lower than personal income tax rates for higher-rate taxpayers.
- Mortgage Interest Deduction: Limited companies can deduct the full amount of mortgage interest as a business expense, unlike individual landlords, who are restricted by personal tax relief rules.
2. Asset Protection
- Buying property through a limited company separates the asset from your personal finances, protecting it from personal liabilities.
3. Easier Succession Planning
- Transferring shares in a company to family members or other parties is often more straightforward and tax-efficient than transferring ownership of individual properties.
4. Portfolio Growth
- For property investors, using a limited company can make it easier to scale a property portfolio, as profits can be reinvested into additional properties without being subject to personal tax until dividends are paid out.
Drawbacks to Consider
While buying property through a limited company has its benefits, there are some potential downsides to consider:
1. Higher Interest Rates on Mortgages
- Lenders often charge higher interest rates for mortgages held by limited companies compared to personal mortgages. Additionally, the choice of lenders may be more limited.
2. Additional Costs
- Setting up and maintaining a limited company involves costs, including accounting fees, filing annual accounts, and compliance with Companies House regulations.
3. Capital Gains Tax
- If the property appreciates in value, the company will pay Corporation Tax on any gains when the property is sold. Distributing these profits to shareholders as dividends will then incur personal income tax.
4. Stamp Duty
- When buying residential property through a limited company, the 3% Stamp Duty Land Tax (SDLT) surcharge applies, regardless of whether it’s your first property.
Steps to Buy Property Through a Limited Company
If you decide to purchase property through a limited company, here are the key steps to follow:
1. Set Up a Limited Company
If you don’t already have one, you’ll need to set up a limited company. Ensure the company’s articles of association include property investment or management as part of its permitted activities.
2. Obtain Financing
Secure a mortgage tailored to limited companies. You may need to work with a specialist lender or mortgage broker experienced in corporate property transactions.
3. Find the Right Property
Identify a property that fits your investment or operational goals, whether it’s a buy-to-let property or a commercial premises for your business.
4. Engage Professionals
Work with professionals such as:
- A solicitor experienced in property law.
- An accountant to advise on tax implications.
- A surveyor to assess the property’s condition and value.
5. Complete the Purchase
Once financing and contracts are in place, complete the transaction. The property will be legally owned by the company, not by you personally.
Tax Considerations
Owning property through a limited company comes with specific tax obligations:
- Corporation Tax: Payable on profits from rental income or property sales.
- VAT: If you purchase commercial property, VAT may apply. However, this can often be reclaimed if your company is VAT-registered.
- Dividend Tax: When distributing profits to shareholders, dividend taxes will apply.
Given the complexity of tax rules, consulting an accountant is essential to optimise your tax position.
When Is It a Good Idea to Buy Property Through a Limited Company?
Buying property through a limited company is generally a good idea if:
- You are a higher-rate taxpayer and want to reduce your personal tax liabilities.
- You plan to build a large property portfolio and reinvest profits.
- You want to separate your personal and business assets.
- Succession planning or long-term investment is a priority.
If you’re buying a single property or have no plans to expand your portfolio, the additional costs and complexity of running a limited company may outweigh the benefits.
How We Can Help
At our company formation agency, we specialise in helping individuals and businesses navigate the process of setting up and managing limited companies. Whether you’re starting out or expanding, we can provide:
- Expert advice on setting up your company structure.
- Tax planning to ensure maximum efficiency.
- Guidance on compliance with Companies House and HMRC regulations.
Related Reading
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Can a Limited Company Buy a Car?