Should You Invest In Property Through A Limited Company?

Since the UK government announced its changes to property tax relief for private landlords in 2017, many property investors have been earnestly exploring the idea of buying a property through a limited company. As with any slightly complex answer, it sadly comes down to an "it depends" approach.

Now, we are not providing advice of any kind on this website. So please speak to your own advisor when making this decision. In this article, we will explore the advantages and disadvantages of buying property under a company name to hopefully help you make your decision.

Just to re-cap on the key landlord tax relief changes that were announced in 2017. The government announced that private landlords were gradually going to lose their ability to deduct finance costs, like mortgage interest, from their earnings to reduce income tax.

There were also other changes made to the Stamp Duty and deductible items:

  • Tax payable on properties over £125,000 in England, Wales and NI
  • A 3% stamp duty flat-rate levy on second homes, regardless of purchase price
  • No 10% more wear-and-tear allowance (only actual costs deductible)

All of these changes were all an effort to curb the private buy-to-let activity. Up until that point, the buy-to-let game was steady and heated.

As a result of all of this, many landlords have been setting up limited companies to cut their tax bill. The reason being is that in a limited company all expenses, including mortgage interest, can be deducted from income for tax purposes. Landlords can then take a dividend, which is usually taxed at a lower rate than if it were standard income, however, this move could potentially mean additional capital gains tax and stamp duty hits in the future.

Today, we have more rented homes being owned by limited companies than ever before. In fact, more than half of applications are coming through as limited company landlords. This is mainly due to companies being taxed more favourably when buying a property through a limited company, especially with the government tax changes.

A few years ago, the number of lenders in the company mortgage market were fewer than there are today. Today, the market has plenty of business mortgage lenders that improve the rates that can be attained.

The amount of company mortgage brokers have grown as well. By the way, we have a growing list of mortgage Brokers if you want to check it out.

If you ever want to read a top personal finance book, a staple is Robert Kawasaki's "Rich Dad, Poor Dad". This book provides a nice clear outline of what an asset is and a liability. Spoiler: Your residential home is not an investment!

Robert also talks about owning your own business in his other book "Cash Flow Quadrant". The benefits of owning your own company and managing your taxes are huge. With property investing and income, the same premise applies: Earn more, pay less.

Now, starting a company is simple but many people need help managing the accounts but non-other than a good property accountant. Preferably they are familiar with tax law but that's not crucial if you're just starting out. When crunching numbers make sure you account for these extra admin costs. An accountant could range from £1,000 - £5,000 a year, depending on the size and complexity of the accounts.

Final Words

The conclusion isn't simple but there are some clear market signals.

  1. The UK government mad tax relief changes in 2017 (phased in over 4 years)
  2. This consequently pushed unfavourable terms for private landlords and buy-to-let investors
  3. There has been a shift in property investors setting up limited companies to invest in property
  4. If it was not beneficial to buy a property through a limited company it would not grow in value and size of the buy-to-let market (Clue: it is growing)
  5. With more lenders in the business mortgage market rates are becoming more attractive

So what do you think? Are you still considering to invest in property? Will it be under a limited company?

Check out our directory of business mortgage Brokers and talk to a few. They generally will share advice and will be happy to discuss talk you through the process and requirements.

Let us know what you think on Twitter.

Back to blog

Share with others

Need to crunch some numbers?
Check out our mortgage calculators

What are you looking for?