Buying a Property Through a Limited Company
This article is about buying residential property through a limited company. If you are buying business premises for the company you should buy the property through the company. If you are buying the property using a mortgage you will have to give a director's personal guarantee on the loan. A lender will require you get independent legal advice for this.
Are you trying to buy a property through a limited company?
Before buying, you need to understand all the risks. We provide independent legal advice for directors who are personally guaranteeing a mortgage on behalf of their business for a fixed fee of INC VAT.
Our solicitors are available from 26/04/2024* and this service is provided via video conference. Getting independent legal advice is a legal requirement for each director.
Should I buy property through a limited company?
When buying a property through a limited company, there are certain pro's and cons to consider. For some people buying a property through a limited company can have significant tax benefits. However, for others it is unnecessary and may, in fact, incur more costs and time spent. For example, if you pay tax at a basic rate and only expect to buy one or two buy-to-lets as an investment in your future. Below, I'll weigh these factors up in more detail.
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Getting a mortgage with a limited company
If you are getting a mortgage as a limited company, the directors will need to personally guarantee the loan. This would make you, as director, liable for the debt. So, buying a property through a limited company does not protect you personally from the liability. Some lenders' loan agreements mean that the lender could come after you for the money as soon as the company missed a repayment. For this reason you must get independent legal advice before you sign your mortgage agreement, to make sure you understand the risks.
Getting a mortgage as a limited company can be harder because many lenders do not like to lend to limited companies. So you may find that you have access to fewer options than if as a private buyer.
Buy to let through a limited company:
If you are funding the purchase using a buy to let mortgage, you will find that most lenders expressly forbid you from living in the property.
- 2
Are you buying the property as an investment, or to sell on for profit?
If this property is an investment, the rental income will be liable for corporation tax if it is owned by a limited company, or if you are a private owner, it will be liable for income tax. See number 3 below to compare tax rates.
Until April 2020, individual property investors only had to pay tax on their rental income, less their mortgage. So, they paid tax on a much smaller 'income'. This is no longer possible for private owners, but it is for limited companies.
As a limited company you can either leave the profits within the company, to reinvest in more property or pay for maintenance. However, if you want to take money out of the company you will have to pay dividend tax, on top of the corporation tax you have already paid.
If you are buying property as an investment for your children, or other beneficiaries of your estate, you can make them shareholders of your limited company. Then, any proceeds from the sale of that property would go to them as per their shares. This income will be taxable, though at a lower rate than inheritance tax.
If you are a property trader, buying properties to 'flip' for a profit, you may want to register as a limited company. As a private individual you would pay income tax on the gains from each sale. Buying a property through a limited company, you would pay corporation tax, instead.
Did you know that multiple directors of the company can guarantee the mortgage?
We charge an extra fee of INC VAT for any additional directors needing Independent Legal Advice.
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- 3
Is it more tax efficient to buy property with a limited company?
UK income tax is payable at 20%, 40% and 45%, depending on what income bracket you fall into. As a limited company, paying corporation tax, you would pay 19% on gains from any sale or rental yield.
- If you are a basic rate tax payer (20%) this 1% difference is probably not worth the extra paperwork involved in running a limited company, especially if that means hiring an accountant, who often charge more for companies than for private individuals.
- If you pay income tax at 40% or 45% there are considerable tax savings to be made by paying corporation tax on the property's income, as a limited company instead.
Do you pay stamp duty when buying a property through a limited company?
Yes. Limited companies are not eligible for the SDLT holiday and are liable for the extra 3% imposed on second properties, even if this is the first purchase made under the company.
Can I buy my own house through my limited company?
Yes. You can do this through sale and purchase. However, your company may have to pay SDLT on any purchase over £125,000. Plus, capital gains tax (CGT) will be payable by you personally upon sale to the company. In most cases it is more tax efficient to register your company before purchasing the property in the first place, rather than transferring it an a later date. Always speak to an accountant for financial and tax advice.
If you are still tied into an existing mortgage, you will likely face early repayment charges. Your company will have to pay any costs incurred through taking out a new mortgage (conveyancing, surveys, etc). Our solicitors have the necessary experience to handle complex cases. If you have any questions, you can always get in touch.
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