We often get asked whether buying residential letting property through a Limited Company is a good idea. The answer to that is…. It depends! In order to give decent advice we would need to know the circumstances of the person doing the buying and their long term intentions. However what we can do here is give an idea of some of the pros and cons of using a Company to buy one property or build a portfolio:
Pros of using a Company:
- 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 carry usually carry forward expenses and losses to a later period more flexibly than an individual
- Easy to share ownership through share allocations
- Potentially no extra higher rate personal tax
Cons of using a Company:
- Less mortgage choice and higher interest rates
- Increased compliance costs
- No Capital Gains allowance
- 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 than this including the prevailing Stamp Duty (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.
Overall the usual advice about buying a property through a Limited Company is that it could be a good idea if the portfolio is going to be held long term with high levels of debt and the profits retained within the Company.
If you would like any help deciding on what is appropriate for yourself please do not hesitate to get in touch. Leave us a message here and we will get back to you.