Thinking about investing in property? One of the big questions you'll face is whether to buy it in your own name or through a limited company. Each option has different tax rules, financial implications, and admin requirements so it’s worth weighing them up carefully.
Here’s a simplified guide to help you get started:
💰 Tax on Rental Profits
Owning the property personally means any rental profit is added to your income and taxed accordingly. If you're a higher-rate taxpayer, you could pay up to 45% in tax. Plus, full mortgage interest relief is no longer available.
Owning the property through a limited company means profits are taxed at the lower corporation tax rate. You can also claim the full amount of mortgage interest as a business expense.
However, if you want to take money out of the company (e.g. as a salary or dividend), you’ll likely face additional tax—so it depends on whether you plan to reinvest or draw the income.
🏷️ Tax When Selling the Property
Selling a property for a profit? Tax works differently depending on who owns it.
Individuals have an annual Capital Gains Tax (CGT) allowance and the rate depends on your income level and the type of property.
Companies don’t get a CGT allowance. They pay corporation tax on the whole gain, and some different rules apply for calculating it. So again—it comes down to whether you want quicker access to funds, or you're playing the long game.
🏦 Mortgages: Costs and Complexity
Getting a personal buy-to-let mortgage is usually easier and comes with better rates.
Company mortgages, on the other hand, can be trickier. Fewer lenders offer them, interest rates may be higher, and directors often have to give personal guarantees.
🗂️ Admin and Legal Responsibilities
Running a company means keeping up with more paperwork:
- Annual accounts
- Corporation tax returns
- Confirmation statements
- Accurate bookkeeping
If you already have a company, this may be manageable. But if not, these extras are worth factoring into your decision.
🧾 Inheritance & Passing It On
One advantage of owning through a company is that shares can be passed on more easily than physical property. This can offer flexibility in estate planning—though there are still tax considerations to be aware of.
🤔 So, What’s Right for You?
In short, there's no one-size-fits-all answer. The best route depends on:
- Whether you want to keep the income or reinvest it
- How hands-on you want to be with admin
- Your long-term plans for the property and your estate
Rules change over time, so it’s always best to talk it through with a tax or property advisor before making a decision.
If you're already a client and would like to explore what this means for your situation, feel free to reach out to your Client Manager—they’ll be happy to help.