3 Things You Need To Know Before Setting Up a Limited Company for Property Investment

by | Mar 20, 2023 | Business tips, Tax

Many ambitious investors will ask themselves whether it’s worth setting up a limited company for property portfolios. And, while incorporating has its benefits, it’s not as simple as you might expect.

Incorporating can see your paperwork liabilities increase or paying taxes differently, but there are also some upsides.

Before you make a decision, here are three things you need to know about setting up a limited company for property investment.

You’ll have to register with Companies House

If you set up a limited company, you’ll have to register with Companies House. Once you’ve done that, you can buy properties and pay for mortgages under the company name. This will mean that, rather than paying income tax, you’ll need to pay corporation tax (CT) on your company’s profits.

It depends on your personal circumstances, but even with the planned increase in CT, it can sometimes be more tax efficient to incorporate (more on that later).

Registering with Companies House does bring its fair share of paperwork, but that’s where we come in. If you’re finding the extra workload to be a bit overwhelming, you can always ask us for help.

Applying for mortgages may be trickier

For property investment companies, it can be costly to get a mortgage when expanding your portfolio.

As a limited company, the eligibility criteria for getting a mortgage will be slightly different. For example, lenders may require a larger deposit or need personal guarantees from the company director (you) if the property’s loan to value is high.

As a limited company, you’ll also be limited to the types of mortgage you can successfully apply for. For example, you won’t be eligible to apply for a residential mortgage, but you can easily for a buy-to-let one.

Once you’ve got your mortgage secured, though, as a limited company landlord, you can subtract mortgage interest costs in full from your income before calculating corporation tax.

Your taxes will be different

As we’ve mentioned, if you incorporate, you’ll pay corporation tax on your income, rather than income tax. That means you might have a smaller bill come your year-end than if you were running a business as a sole trader.

For example, if you were to make a profit of more than the income tax additional-rate threshold of £150,000 in the year as a sole trader, you’d pay 45% income tax on the portion above that amount.

Whereas, if your investment was owned by a limited company, you’d only have to pay 19% for annual profits under £50,000. This would increase, though, at a tapered rate, to 25% if your annual profits surpassed £250,000.

When running a property investment company, you’ll say goodbye to your annual capital gains tax (CGT) allowance. Rather than paying CGT on your gains, you’ll pay CT instead.

Limited companies also have to pay a 3% stamp duty land tax surcharge on top of residential rates when purchasing property. If you’re transferring property in your name into a company, you’ll have to sell it to your company (and pay stamp duty at that point).

We’re here to help

There’s a lot to understand before setting up a limited company for property investment. We’ve outlined three key things to bear in mind, but we can’t stress enough that the best course of action depends entirely on your own unique situation. That’s why it’s always best to seek professional advice.

We’ve worked with countless property investors to help them decide on the best way to run their businesses. So, if you’re still deciding on your next step, we’ll be there to guide you.

Get in touch to discuss your property investments.



The information provided is of a general nature. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from an appropriate professional before you take any action or refrain from action. Whilst we endeavour to use reasonable efforts to furnish accurate, complete, reliable, error free and up-to-date information, we do not warrant that it is such. We and our associates disclaim all warranties. The information can only provide an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice.

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