Investment property

IF YOU’RE PLANNING to buy an investment rental property, you may be wondering if you should do so through a limited company. In recent years, there has been a substantial move towards buying investment property through companies that are listed as limited. This has primarily been driven by changes to the mortgage tax relief rules.

Sometimes, smaller landlords such as those with just one property and those in the lowest income tax bracket, might not benefit as fully from setting up a limited company. Particularly for those who already own the property, this would involve effectively selling it to the company, which could incur stamp duty.

Running a limited company isn’t for everyone and many people prefer to own investment property personally. There are pros and cons to both individual ownership and owning a rental property through a company, so it’s important to weigh up your options carefully before making a decision.

PROS OF BUYING A PROPERTY THROUGH A LIMITED COMPANY AT A GLANCE

PROS
• Profits and Capital Gains taxed at 19% Corporation Tax rate

• Companies are not subject to the restrictions on relief for interest and finance costs that apply to individuals

• Companies can usually carry forward expenses and losses to a later period more flexibly than an individual

• Family members can be more involved through becoming shareholders and directors, resulting in potential Inheritance Tax and Capital Gains Tax benefits

• Potentially no extra higher rate personal tax

CONS
• Less mortgage choice and higher interest rates

• Increased compliance costs

• No Capital Gains allowance

• From 1 April 2023, there is an increase in the Corporation Tax rate to 25% in the main rate of Corporation Tax and the introduction of a 19% small profit rate of Corporation Tax for companies whose profits do not exceed £50,000

• Any personal use of properties owned by the company, by the investor or their close relatives, may have severe tax consequences

Other aspects to consider include the prevailing Stamp Duty Land Tax (or LBBT in Scotland) at the time of purchase or transfer for individuals and companies and the prevailing tax rate of the individual or individuals involved.

Don’t forget, our professional, friendly advisers are on hand to support you and can help you explore all of your options.