Purchasing Property Through A UK Limited Company
Are you considering purchasing a property through a UK Limited Company? It's becoming an increasingly popular option for property investors and for good reason. Not only is it often more tax efficient than other property buying methods, but it can also provide access to mortgages. In this blog post, we'll discuss the costs of running a UK Limited Company, the benefits of purchasing property through it, and answer some of the most frequently asked questions. Read on to learn more and determine if purchasing property through a UK Limited Company is right for you.
What makes limited companies a popular option for UK landlords when purchasing property?
Since the changes to mortgage tax relief rules in 2015, there has been a substantial move towards buying investment property through limited companies. This is because private landlords can no longer deduct any mortgage expenses from their rental income to reduce their tax bill. As a result, some landlords have changed their tax status from individual to that company.
One advantage of purchasing property through a UK-limited company is that the company can treat mortgage interest as a cost, reducing its taxable profit. This is particularly beneficial because the corporation tax and dividend tax rates are much less than the income tax rate for higher-rate taxpayers.
However, it's important to consider the costs of running a UK-limited company for property purchase. This includes the cost of registering the company, annual filing fees, and any accounting and legal fees. Additionally, there may be ongoing administrative costs and compliance requirements.
Overall, the cost of running a UK limited company for purchasing property will depend on various factors such as the size and complexity of the company's operations. It's important to carefully consider these costs and weigh them against the potential tax benefits before deciding whether this setup is suitable for your property investment.
It's worth noting that the current standard personal tax-free allowance is £12,571 (although this reduces if your income is over £100,000). Understanding the financial implications and seeking professional advice is essential when considering purchasing property through a UK limited company.
Are mortgages accessible when purchasing property through a UK-limited company?
When it comes to purchasing property through a UK-limited company, one question that often arises is whether mortgages are still accessible. The answer is yes but with a few caveats.
Mortgages for limited companies are typically only available for Special Purpose Vehicles (SPVs), which are companies specifically created for property investment purposes. A limited company mortgage works similarly to a traditional mortgage, with the property being held in the company's name instead of an individual's.
It's important to note that limited company mortgages are not considered to be a form of mainstream lending. The majority of lenders that offer limited company mortgages only lend to companies that focus solely on property investment. However, there are a small number of lenders that may offer mortgages to limited companies that trade in other areas in addition to property.
To register a limited company as an SPV, it is necessary to select the appropriate SIC code during the company registration process. This code indicates that the company's primary activity is property investment. Lenders will also request this code when applying for a mortgage.
While accessing mortgages for property purchases through a UK-limited company requires meeting certain criteria, it is still a viable option for landlords looking to maximize tax efficiency and protect their assets.
So How Do We Form The Company
A short video below should give you some form of idea on setup, benefits, and how to set up and structure a buy-to-let property company.
Are there tax advantages to acquiring property through a UK-based limited company? What are the primary benefits of this option?
Purchasing a property through a UK limited company can be more tax efficient for landlords due to the introduction of Section 24 interest restrictions. This change, implemented by the government, aimed to make higher rate taxpayers contribute more in tax.
There are several pros to buying a property through a limited company in terms of tax efficiency. Firstly, potential tax savings can be achieved as the rental income is subject to corporation tax, which is currently lower than personal income tax rates. Additionally, there are tax planning opportunities available, such as the ability to offset expenses against rental income, resulting in a reduced tax liability.
Moreover, mortgage interest relief is still accessible when purchasing property through a UK-limited company. Landlords can claim tax relief on the interest paid on their mortgage, potentially resulting in significant savings.
Another advantage is limited liability. By owning the property through a limited company, landlords' assets are protected, minimizing the risk in case of legal disputes or financial difficulties.
However, there are also some cons to consider. Mortgages in a limited company may have higher interest rates or stricter lending criteria compared to personal mortgages. Additionally, if landlords decide to withdraw money from the company, further taxes may be payable.
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