Property Investment - Purchase through a Company?

Deciding whether to buy an property through a  company or in your own name can be a confusing scenario for most, especially when trying to consider which is the most tax efficient. Ultimately, the most tax efficient method will be determined by your intentions. 

The first important conclusion to make before making this decision is whether you’re a property trader or investor. 

If you buy a property and make improvements in order to sell on for a profit, you’re a trader. In this case you’re likely to be best off buying as a limited company because within a limited company you will pay corporation tax on your profits – (current rate is 19%). As an individual, your gains would be taxed as income – which, if you're taxed at the higher rate which will be higher than the corporation tax rate. 

If you intend to buy a property to generate rental yields and aim to receive a capital return in future years, you’re an investor. There are three reasons why you might want to hold property within a company rather than yourself: 

  1. Rental income will be subject to Corporation Tax as opposed to higher income tax rates.  
  2. If you have funded the purchase of the property by obtaining mortgage funding, the interest on your mortgage will attract a tax saving (from April 2020 only a certain amount can be claimed by individuals). 
  3. If your intention is to leave the profits in the company to build up a retirement pot for example, you will pay capital gain tax on the eventual wind up of the company which will be a lower rate. 
  4. More options are available when considering IHT planning. 


Whilst the above points sound appealing, there are also some downsides to using a company: 


  1. Mortgage providers may be reluctant to lend to a newly formed company with no credit history and there are fewer mortgage options to choose from compared to individuals.  
  2. If you are taking money out of the business because it will be a key source of your income, you will be subject to Dividend tax rates on these withdrawals or PAYE if you take a salary.  
  3. Extra legal and administrative burdens relating to owning a company (accounts, corporation tax returns, confirmation statements etc.) and the professional fees which come with those. 


Overall, there are a lot of different factors to consider and to no surprise, the most efficient method for you will depend on your personal circumstances. If you need any assistance in making this decision, please get in touch with us. 

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