[et_pb_section fb_built=”1″ admin_label=”section” _builder_version=”4.16″ global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_row admin_label=”row” _builder_version=”4.16″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”4_4″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||” theme_builder_area=”post_content”][et_pb_text admin_label=”Text” _builder_version=”4.27.4″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” hover_enabled=”0″ global_colors_info=”{}” theme_builder_area=”post_content” sticky_enabled=”0″]
Many ambitious investors will ask themselves whether it’s worth setting up a limited company for property portfolios. While incorporating has its benefits, it also brings additional responsibilities and considerations.
Incorporating can increase your administrative workload and change how you pay taxes, but it also offers significant advantages such as limited liability and potential tax benefits.
Before you make a decision, here are three things you need to know before setting up a limited company for property investment.
You must register with Companies House
Setting up a property company means registering with the Companies House register. Once registered, your limited company becomes a separate legal entity, distinct from you as an individual. This means the company itself can own residential property, enter into contracts, and take on liabilities.
As a property investor operating through a limited company structure, you’ll be legally responsible for maintaining proper records, filing annual accounts, and submitting a company tax return to HM Revenue & Customs (HMRC). The company must also appoint at least one director and at least one shareholder, and you may choose to appoint a company secretary.
Registering with Companies House involves providing a legal statement signed by the initial shareholders, agreeing to form the company, and submitting the company’s written rules, known as the Articles of Association.
Although the registration process adds to the paperwork, professional accountants and specialist advice can help you manage compliance and maintain proper records.
Mortgage applications may be more complex
Applying for a buy to let mortgage as a limited company can be trickier than as an individual. Lenders often require a larger deposit and may ask for personal guarantees from company directors, especially if the loan-to-value ratio is high.
Limited companies are typically eligible for buy to let mortgage products rather than residential mortgages. However, mortgage interest deductions are a significant tax advantage for limited companies, as mortgage interest is treated as a business expense and can be fully deducted from rental income before calculating taxable income.
Having a business bank account dedicated to your property company is essential to keep company finances separate and comply with accounting records requirements.
Taxation differs significantly
When you run a property investment business through a limited company, you pay corporation tax on your profits rather than income tax. The current corporation tax rate is 19% for profits up to £50,000, increasing on a tapered basis to 25% for profits exceeding £250,000.
This limited company structure can offer tax efficiency and tax advantages compared to operating as a sole trader, especially for higher profits. However, you lose the personal capital gains tax allowance, as gains on property sales within the company are subject to corporation tax rather than CGT.
Additionally, limited companies must pay a 3% stamp duty land tax (SDLT) surcharge on top of the residential rates when purchasing residential property. If you transfer multiple properties into the company, SDLT must be paid on the market value, and multiple dwellings relief may be available to reduce the overall tax liability.
Dividend payments from the company to shareholders are subject to dividend tax, so tax planning is essential to optimise your tax bill. National Insurance contributions are also different when drawing income via dividends compared to salary.
We offer specialist advice and support
Setting up and running a property company involves numerous legal and financial obligations, including filing annual accounts with Companies House and maintaining accounting records.
The best approach depends on your unique circumstances, including your property portfolio size, rental income, and long-term goals such as inheritance tax planning.
Our team of professional accountants specialises in property businesses and can provide tailored tax advice, assist with company formation, and guide you through the registration process, including selecting the appropriate SIC code and official address for your company.
If you’re considering setting up a limited company for property investment or want help managing your existing property company, get in touch to discuss how we can support your business and help you benefit from the significant advantages of incorporation.
Get in touch to discuss your property investments.
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]
