Investing in UK property through a limited company

A growing number of investors, domestic and abroad, are forming limited companies to acquire UK property portfolios.

This means the property they purchase is not technically held in their name, but their company’s.

What is the use in this? Why are they going through the extra effort of doing that? And how could you benefit from investing in property through your own company? 

Tax benefits

It’s mainly an attractive approach to building a property portfolio because of how company ownership changes the tax investors pay. Profits held in a company are charged corporation tax at 19%.

If you were to purchase a buy-to-let property in your own name, however, you would pay income tax on your profits, which could be as high as 45% depending on which tax bracket you fall into.

You might also be able to benefit from reduced inheritance tax if you make family members shareholders of your company, but you should contact a reliable accountant if you want to do this.

Investors with limited companies can also rest assured that creditors will in most cases not access your personal assets if the business’s financial situation goes downhill because it is technically their company that is liable for its finances, not the owners.

Things to bear in mind

On the other hand, there are some additional factors property investors need to consider if they are purchasing through a limited company.

First, there could be capital gains tax implications  for investors if they set up their limited company and transfer their property to it. 

If you do this, you will have to sell the property for repurchase by your limited company, and if the value of the property has risen since then, a capital gains charge could apply.

For higher or additional rate taxpayers, a 28% tax is required on capital gains of residential property.

Buyers also need to consider their stamp duty land tax obligations and the 3% surcharge to transactions for additional properties.

While the holiday is still tapering off, it’s probably too late for existing owners to take advantage of this given that the average transaction takes 88 days to complete, so the rates applicable from October 2021 onwards must be factored into the costs.

Investors also need to remember the additional costs and time it takes to set up and run a limited company, including preparation of accounts and submission of company returns.

There are also accountancy fees to consider, although the ser6vices you receive, like the ones Green & Peter offer, will save you money in the long run through a refined tax strategy.

Post-Brexit and post-COVID

Investors also need to keep in mind the longer-term context we find ourselves in. Most immediately, there is the post-COVID situation, which is contributing to the fastest rise in house prices in 17 years, partially due to the stamp duty land tax holiday.

Over the last few months, there has been no stamp duty land tax charge applied on transactions for properties in England and Northern Ireland worth up to £500,000.

From 1 July 2021, the zero-rate threshold was reduced to property with values of up to £250,000, while from 1 October, rates will revert back to their pre-pandemic levels.

The holiday saw a dash to get transactions through before its deadline, helping push house price inflation by 13.4% in the past twelve months too. If this trend continues, property investors could stand to gain.

But some in the industry say that the holiday has so far given investors “a completely false property market” and that house prices will fall by as much as 5% in the coming months following its withdrawal.

The long- term effect of Brexit might also have an adverse reaction to the UK housing market if fewer EU nationals see the UK as an attractive place to live, lowering demand in the housing market.

Contact us for more information about investing in property through a limited company.

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