Should I buy a property through a company?

The last few years we have witnessed an unprecedented wave of legislation against buy to let landlords. 

First there was the 3% rise in stamp duty for second or more properties. Then there was the removal of tax relief on interest payments for higher rate taxpayers. If that wasn't enough, the wear and tear allowance worth 10% of rents on furnished was also abolished.

Tax bills for landlords holding property in their own name will undoubtedly have risen substantially - and keep rising until 2020/21 when the impact of the removal of interest relief fully kicks in.

So what can be done about this?

The question normally posed is, should I buy property through a company to keep my tax bills down?

Answer as with most things in tax is, it depends!

Firstly you need to be clear on what your objectives in property are. Are you buying property to hold as a long term investment? Are you buying property to convert / develop and sell on with a view to repeating? Are you doing a bit of both? Will you be borrowing to invest?

Once you're clear on your objectives then you can properly determine which ownership structure would work best for you tax wise. The options for ownership range from personal to partnership to limited company to limited liability partnership (LLP) and even a family trust.

Buying to hold long term

If you are looking to build to a long term property portfolio with multiple properties then it is likely that the company route will be the way to go.

The advantages of holding property via a company rather than personally are as follows:

  • Full tax relief on interest paid on any loans to purchase properties
  • Profits subject to lower rate of corporation tax currently 19% - falling to 17% by 2020 (as opposed to up to 45% in personal ownership)
  • More flexibility around distributing profits through company shareholding structure
  • Limited liability protection

The disadvantages are:

  • Double taxation on sale of property - the company pays corporation tax on any profit on the sale and then you need to pay income tax to extract the monies personally (if you are building and reinvesting profits into additional properties then this is less of an issue)

Buying to convert / develop then sell

If you are looking to buy properties to develop and then sell at a profit, then a company offers more advantages than not. Some of these are as follows:

  • Lower rate of tax i.e 19% (falling to 17%) on profits. Chances are the profit is likely to be substantial if this is a development project
  • Ability to retain profits in the company to reinvest into the next development
  • De-risking yourself against potential claims - higher risk when dealing with projects, build contracts etc

Other issues

Historically lenders have created all sorts of obstacles for purchase through a limited company. However since the new legislation was introduced, purchase of properties via a company has become more commonplace and lenders have adapted accordingly. It is now a lot easier to get mortgages through a company than it used to be.

What about existing properties? Should I transfer them into the company? A topic for a future blog ... ;-)

In conclusion, get your objectives clear first then you can take advice on which structure would be best for you going forward.

Hope that's been useful.



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