Wednesday, February 28, 2024

Buying investment properties for sale UK via a limited company

investment properties for sale UK

It used to be the case that only a tiny minority of property investors would buy a house through a limited company. However, with changes to mortgage tax relief over the past few years, that number has grown substantially. The main reason for buying investment properties for sale UK through a limited company is tax efficiency as if you are a higher rate taxpayer renting out a property as a private individual you will pay up to 45% of your rental income in tax.

Doing so as a limited company means that you will pay corporation tax at 19%. Put in these simple terms, it sounds like a no-brainer, but before your contact your accountant and start registering with Companies House, there are a few things to think about.

Some of the advantages and disadvantages of buying a property through a limited company:

What are the advantages of buying through a limited company?

Tax benefits

The main advantage of buying a property through a limited company is the tax benefits mentioned above.

To explain in more detail; setting up a limited company can make sense if you are a higher rate taxpayer. Rather than paying income tax on your profits, at up to 45%, landlords who own rental property through a limited company will pay corporation tax on their profits at the much lower rate of 19% in 2020.

In the past, the income tax you paid could be offset by generous mortgage tax relief. Private landlords were able to claim tax relief on their mortgage interest at the rate they paid income tax, so at as much as 45% for those paying the highest rate of tax.

Since 2017 this relief has been gradually reduced, meaning that this financial year landlords will only be able to claim relief at the basic tax rate of 20%.

As an example, before 2017 if a landlord paid the highest rate of tax and had an interest-only buy-to-let mortgage of £1,850 a month, they could have claimed £830 back from HMRC in tax relief. Under new rules, in 2020, this would be just £370.

Limited liability

Another advantage is that if you run your buy-to-let business as a limited company, it will be legally separate from your personal affairs, meaning that you aren’t personally liable for any losses.

Inheritance tax benefits

Buying a house as a limited company could also be a way of minimising the inheritance tax paid by your family members. You may be able to do this by making them shareholders in your limited company but do seek professional advice before moving forward.

Disadvantages of buying through a limited company

While the tax advantages of setting up a limited company make it sound like a good idea, there are some things you should bear in mind.

There are costs associated with running a limited company, and it may take up more of your time than managing a property as a private individual.

You will be required to prepare detailed accounts which may involve paying professional fees to accountants and lawyers. You may also struggle to get as favourable a buy-to-let mortgage rate as those available to personal borrowers.

It is definitely advisable to get professional advice before you get started.

Additional costs:


Unless you set up your company before purchasing your chosen investment properties for sale UK, you will need to sell your second home for repurchase by your limited company. Doing this can trigger capital gains tax if the value of the property has risen since its original purchase.

The capital gains tax rate for residential property is currently 28% for higher rate taxpayers. For basic rate taxpayers, the rate depends on the size of your gain and your taxable income.

There is no capital gains tax to pay if your limited company sells a property on in the future; the company would pay corporation tax on the profit instead.

Buying investment properties for sale UK through a limited company and SDLT

Stamp duty is also payable on the repurchase of the property. In addition, anyone buying a second home is subject to a 3% surcharge on the rate of stamp duty owed.

Higher mortgage fees

Changing the ownership of the property from a company could also mean changing your mortgage if you have one. This could trigger early repayment fees as well as additional legal and valuation fees.

Many lenders also charge higher interest rates and fees for limited companies compared to individual buy-to-let landlords.

Costs of setting up a limited company

You can apply online to register your company for just £12 and your company will usually be registered within 24 hours. Postal applications take between eight and 10 days and cost £40. Should you need it, a same-day service costs £100 – you must apply to Companies House by 3 pm.

Costs of running a limited company

Once your company is registered, you will have additional responsibilities – you will need to prepare accounts and submit company tax and corporation tax calculations to HMRC. You may need the services of an accountant to complete these tasks. If you already use an accountant, they may charge higher fees when preparing accounts for limited companies. You may also have additional legal and auditing fees to consider.

Things to consider:

Are you buying as a trader or an investor?

If you are buying investment properties for sale UK to renovate, rent out, and then sell on at a profit you are probably a trader rather than an investor. In this case, you should consider setting up a property company. Otherwise, you will need to pay capital gains tax on the profits from each property you sell. If this isn’t in your plan, you are an investor and will need to weigh up all the pros and cons of buying through a limited company or operating as a private individual.

What does setting up a limited company involve?

To set up a limited company you will need to register with Companies House. Your company must have at least one director and at least one shareholder, but these can be the same person.

You will need a name for your company and to decide whether you are the only shareholder, or whether you wish to extend share ownership to someone else, such as your partner.

You will also need a company address. You can use your own address or, if you have an accountant, you can use their office.

You must register your company as an employer with HMRC, even if you are only paying yourself as a director.

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