Can you buy a house in a limited company UK?
Yes, with a limited company you can legally buy a residential property in the UK. However, there are pros and cons when you are purchasing a property through a limited company rather than buying it it as an individual.
Advantages of buying a property through a limited company include reduced personal liability, potentially lower tax rates, and increased privacy in ownership. Disadvantages include higher upfront costs, complex legal and financial requirements, and limited mortgage options.
Everything depends on a variety of factors, including the specific goals and circumstances of the buyer. It is important to carefully consider all of the potential advantages and disadvantages before making a decision.
What are the potential advantages of buying a property through a limited company?
Buying a property through a limited company instead of your personal name can offer several advantages. Firstly, profits from rental income will be subject to corporation tax instead of income tax, resulting in significant tax savings, especially for higher rate taxpayers.
Secondly, mortgage interest is treated as a business expense for limited companies, meaning it can be deducted before paying corporation tax, unlike for private landlords who only receive a tax credit based on 20% of their mortgage interest payments.
Finally, holding property within a company provides more options for mitigating inheritance tax, which can be useful for landlords planning to pass their property portfolio down to family members.
Overall, investing through a limited company can offer tax efficiencies, flexibility in dividend payouts, and access to more advanced tax planning strategies.
What are the potential disadvantages of buying a property through a limited company?
When considering buying a property through a limited company, there are several potential disadvantages that should be taken into account.
Firstly, finding a suitable lender can be challenging as most buy-to-let lenders do not lend to limited companies, and even if they do, they may require personal guarantees from the directors and offer higher interest rates.
Additionally, transferring or selling a property to a new company may trigger capital gains tax, as the property’s value may have risen since it was purchased. Stamp duty would also be payable on a repurchase of the property.
Moreover, to access rental income, the owner would need to pay themselves a salary or dividend, which would be subject to income tax. It’s important to note that rental profits taken as dividends would not be considered a business expense.
Furthermore, the admin and cost of setting up and running a limited company should also be considered. Annual accounts must be filed, and additional admin is required as the number of properties owned through the company increases.
The process of moving between limited company and personal ownership is not straightforward and involves additional costs, including stamp duty, capital gains tax, and legal fees.
Finally, taxes on money withdrawn from the company should be carefully considered, and professional advice should be sought to ensure tax efficiency.
Overall, while purchasing property through a limited company can have tax advantages, the potential disadvantages such as finding a suitable lender, triggering taxes, and administrative burden should be carefully considered before making a decision.
What are the steps involved in buying a property through a limited company?
Purchasing a property through an existing limited company may seem like a straightforward process, but finding a lender can be a challenge, as many buy-to-let mortgage providers are hesitant to lend to limited companies.
If a lender is found, they may require personal guarantees from the company directors, which increases personal risk. Additionally, limited company buy-to-let mortgages usually come with higher interest rates.
Therefore, the cost and benefit of buying through a limited company should be carefully weighed.
If you already own property and plan to expand your buy-to-let business, selling your existing properties to the new company may save you money in the long run. However, this process comes with tax implications, such as capital gains tax.
It’s essential to debunk the myths and misconceptions surrounding buying property through a limited company.
Firstly, it does not necessarily allow for the avoidance of all taxes, save time due to additional administration, or generate immediate profits. Instead, it is a complex financial decision that requires careful consideration with the help of professionals.
For those new to being a landlord, it is crucial to understand the details of buy-to-let ownership and the costs involved.
It’s vital to remember that buying through a limited company should not be a temporary solution but a long-term investment that will yield profits over time.
Can a foreign company buy property in the UK?
Foreign companies and trusts can purchase property in the UK, but they are required to register with Companies House. Failure to register is considered a criminal offense.
The Land Registry will not permit the registration of a transfer of land, grant of a lease, mortgage, or any other charge over UK land owned by an unregistered overseas entity.
Therefore, new overseas companies or trusts must register with Companies House before purchasing land, while existing entities that own UK property must register before selling it.
The registration process can be completed online and requires the entity to provide the same beneficial ownership information as UK companies. However, verification checks can only be conducted by assurance agents registered with Companies House.
Conclusion
Buying property through a limited company in the UK has both advantages and disadvantages.
While tax savings, reduced personal liability, and increased privacy are attractive benefits, finding a suitable lender, triggering taxes, and facing administrative burdens are potential drawbacks. It’s crucial to consider all factors and seek professional advice before making a decision.
Additionally, foreign companies and trusts can purchase property in the UK, but they must register with Companies House to comply with the law.
Overall, buying property through a limited company or as a foreign entity requires careful consideration and planning, and it’s essential to weigh the costs and benefits before proceeding with any purchase.
