If buying property using a limited company is a strategy that you’re considering using to obtain more property, then it makes sense to fully explore the pros and cons of this approach first – especially since the introduction of the Section 24 Landlord and Tenant Act 1954 rules in 2017.
Below, the property investment professionals at The Mistoria Group explain the two primary pros and cons of buying property using a limited company.
On top of this, they also answer some of the most frequently asked questions about this topic.
Can you buy a property through a company and live in it?
First and foremost, yes, there are some circumstances where you can buy a property through a limited company and live in it. However, whether or not you can live in the property will depend on how the limited company purchased the property.
For example, if the company obtained a buy-to-let (BTL) mortgage in order to purchase the property, then it’s unlikely that the lender would allow you to live in it.
In many cases, this isn’t advisable as you could incur a Benefit In Kind (a tax on employees who receive benefits) unless you pay commercial rent to the company.
Do you pay stamp duty if you buy a property through a company?
Yes, regardless of whether you want to obtain a property as an individual or a limited company, stamp duty will still be applicable at the same rate.
However, the tax relief available to you as a limited company may differ to the support available for individuals.
Is it better to buy a property through a company?
While buying property using a limited companyis possible, this doesn’t mean it’s always the best choice. To help you determine whether this is an avenue worth exploring, we take a look at the two biggest pros and cons of adopting this approach in more detail below.
Significant potential tax savings
The main motivator behind buying property using a limited company is often due to the potential tax savings that can be made. In order to maximise rental yield, property investors and landlords will often try to limit the amount of HM Revenue and Customstax on their profits.
For properties owned in the name of an individual, these rental profits will be taxed at the rate of Income Tax which varies depending on your overall income.
After £12,570 which is tax-free, the rest of this income is taxed at either the Basic Rate of 20 per cent (for income between £12,501-£50,000), the Higher Rate of 40 per cent (for income between £50,0001-£150,000), or the Additional Rate of 45 per cent (for income over £150,000).
However, properties owned by a limited company are subject to corporation tax, not income tax and as the rate of corporation tax on profits is currently between 19 and 25 per cent, higher earners could see significant savings by buying property using a limited company.
Difficulties obtaining your income
While some individuals may see plenty of tax savings buying property using a limited company, they could face more difficulties obtaining your income compared to purchasing a property in your own name.
Instead of simply receiving the cash straight into your bank account, the money will need to be obtained either as a dividend (distribution of earnings to a company’s shareholders) or part of your salary.
To receive this money as dividends, you will be required to pay tax at a basic rate of 7.5 per cent or higher rate of 38.1 per cent after the first £2,000. This tax will be required after the initial corporation tax, which could result in limited tax savings if you’re not a higher income taxpayer.
Alternatively, to receive this money as a salary, PAYE and national insurance contributions will need to be made which can be a pricier option than the dividends approach.
Is it worth putting property into a limited company?
While there are many more pros and cons related to buying property using a limited company, your individual circumstances will be instrumental in determining whether this decision is worthwhile.
As a result, it’s always worth contacting a property investment expert to explore your options.
Purchasing property using a limited company
Wondering whether buying property using a limited companyis the right route for you?
Specialising in property in the North West of England, we can provide expert advice relating to lucrative property investment opportunities in key locations like Manchester, Salford, Liverpool, and Bolton.
For those eager to dig a little deeper into some of the best property investment strategies, please don’t hesitate to contact The Mistoria Group today.
To discuss your specific requirements with a friendly member of our knowledgeable team, please feel free to give us a call on 0800 500 3015.