Purchasing a residential property through a UK Limited Company

Tax

6 Sept

Buying a residential property through a limited company in the UK can offer several benefits. Here are some of the key advantages.

Please note all rates and allowances quoted are for the 2023/24 tax year end.

Limited Liability

Using a limited company provides limited liability protection. The company is a separate legal entity, distinct from its directors and shareholders. Therefore, if the property encounters financial difficulties or legal issues, the liability is generally limited to the assets held within the company, protecting the personal assets of the directors and shareholders.

Tax Efficiency

There are numerous tax benefits of buying property through a limited company. These include:

Corporation Tax Rates

Limited companies are subject to corporation tax rather than income tax rates. From 1 April 2023 this is between 19-25% depending on the company profits. This can be advantageous compared to income tax rates for higher income individuals who will pay income tax at up to 45% on profits if owned personally. Should the shareholders wish to extract profits from the company they will suffer additional personal tax as per below.

Profit extraction

Holding property within a company enables individuals to extract profits in the most tax efficient manner. This can help to maximise tax bands and ensure certain thresholds aren’t exceeded. For example, keeping one’s income below £100,000, to ensure the personal allowance of £12,570 tax free income remains in play.

Dividends vs rental income tax rates

Profits withdrawn from the company can be declared as dividends which attract a lower rate of tax compared to rental income tax rates.

Tax band	Tax rate on dividends	Tax rate on rental income
Basic rate	8.75%	20%
Higher rate	33.75%	40%
Additional rate	39.35%	45%

Mortgage Interest Relief

Unlike individual landlords, limited companies can fully deduct mortgage interest expenses when calculating taxable profits. This is in contrast to recent changes in UK tax regulations, which have reduced the tax relief for individual landlords to 20% of the mortgage interest.

Build-up of reserves

If the long-term aim is to grow a property portfolio, all profits can be left in the company (therefore no personal tax is payable). The build-up of these profits in the company can then be used to purchase further properties.

Capital Gains Tax

Individuals pay Capital Gains Tax at rates of 18/28% after the deduction of the tax-free allowance which is currently £3,000. Companies pay corporation tax at a rate of between 19-25% depending on taxable profits.

Inheritance Tax Planning

Holding property within a limited company structure can provide a number of inheritance tax planning opportunities. One example being that shares of the company could be gifted to family members. There are a number of other Inheritance Tax planning opportunities to consider.

Privacy

Buying property through a limited company can offer greater privacy compared to purchasing as an individual. The property ownership details are registered with Companies House rather than the Public Land Registry. This can be beneficial for individuals who value their privacy or wish to keep their property investments confidential.

Flexibility and Investment Options

Using a limited company structure allows for more flexibility in managing and expanding a property portfolio. It offers the ability to easily add or remove properties, transfer ownership, and take advantage of corporate structures to accommodate multiple investors or shareholders.

Other points to consider

Stamp Duty Land Tax

Purchasing a residential property through a Limited Company will give rise to a 3% surcharge on the applicable Stamp Duty Land Tax rate (which is the same as when purchasing an additional property personally).

Mortgage rates

Buy to let mortgages for Limited Company’s may require a higher initial deposit and be subject to higher interest rates compared to personal mortgages. We recommend you speak to a mortgage broker for further clarification.

Company administration

There are numerous ongoing statutory and tax compliance requirements of running a Limited Company in the UK which include: maintaining up to date statutory records, submitting annual financial statements to Companies House, and filing the company’s corporation tax return with HMRC.

Giordan Boston

Giordan qualified as a Chartered Accountant in December 2017 at a medium-sized firm where he worked largely with owner-managed businesses, advising on a range of accounting and tax matters for clients in the financial services, retail and insurance sectors. Before joining the Sampson Fielding team, Giordan was a manager in the Financial Services audit team at Grant Thornton where he gained deeper insights into the financial services world.