Limited Companies

Holding property in a limited company may offer tax benefits to some people – especially higher or additional rate tax payers.

When property is owned personally, rental income is taxed at your personal tax rate, whereas rental profits on properties owned in limited companies are taxed at the current level of Corporation Tax.

From 2017 the government introduced new rules restricting the amount of tax relief landlords can claim on residential property finance costs such as mortgage interest. However, these changes do not affect properties owned in a limited company structure where mortgage interest can still be deducted as a business expense.

In response to the 2017 tax changes, the Prudential Regulation Authority (PRA) introduced new guidelines requiring lenders to tighten up their affordability checks on buy to let landlords who borrow in their personal names. However, as limited companies don’t pay income tax the new guidelines do not apply which means that lenders may be able to offer a more generous income cover ratio.

If you are planning to pass your business on to family in the future, it may also be simpler to transfer shares in a limited company than transfer the ownership of privately held property.

Although there are potential advantages with a limited company structure there are some negatives too. Many of the high street lenders won’t lend to companies so there is less choice of provider. The legal work for limited company applications also tends to be more complicated and costly. You will also have some additional administration duties such as submitting annual accounts. Thought also needs to be given to if and when the property will be sold as this could also have an impact on the decision.

We do not offer taxation or legal advice so recommend that you speak to an accountant and solicitor to discuss the advantages and disadvantages of limited company ownership versus personal ownership before making a decision.

A company can be set up in matter of minutes and once incorporated the mortgage application can be made. The application will usually be underwritten based on the individual directors / shareholders circumstances so for a new company, no accounts will be required.