The Top Reasons to Invest in Property Through a UK Limited Company

You might not know this, but when it comes to a limited company, it is legally identified as being a completely separate entity from the owner. This means that you and the company are two completely different things in the eyes of the law. Therefore, the company owns its assets; you don’t.

Obviously, this makes a lot of sense when you consider the owners and CEOs will change hands over the years, but what you probably didn’t know is that using a limited company to invest in property can actually have quite a few benefits.

There are plenty of benefits on a financial basis, but also other ones to consider. Let’s take a look at some of what these are.


1. No Mortgage Interest Relief Restriction


Technically speaking, while the amount of tax relief that is accessible to property owners is being cut back at the moment, any interest that is paid on a mortgage to purchase property as a limited company is completely tax-deductible.

This means that in a lot of cases, it’s actually more efficient to purchase property as an investment through the company rather than as a person.

Something else you should keep in mind is that as of April 2020, landlords are no longer allowed to take mortgage interest away from the profits of the rent, which will change income tax bills.


2. Limited Companies Pay Less Tax


Your typical limited company pays corporation tax instead of normal income tax. Income tax is usually charged at 19% of the profits of a company instead of up to 45% for an individual.

Clearly, you would have to pay any income tax necessary if accessing money from the limited company, but you’ll be better off doing it from a tax-efficient perspective.


3. Shareholders – Multiple Individual Tax Allowances


Splitting the profits of a company between different shareholders, whether via  salary or by paying them in dividends, means that you are allowed to take advantage of multiple individual tax allowances. For example, you and your partner, or your children (if they are over the age of 16) could technically each use pretty much as much of an income tax allowance as you want to, and you can be quite flexible, which means that you are capable of varying the frequency of sharing out profits to your advantage and pay different amounts of profit to each other.

It’s probably important to know that it’s quite easy to bring new shareholders on board, which means that you can distribute the profits even further. The more shareholders that you have, the more tax allowances available to you.


4. No Personal Assets


The good thing about limited liability protection, which is what a limited company would get, is that it’s much more reliable than a personal liability, especially during financial crises.

A creditor will only have access to the assets of a company, so if the financial situation of the company was to ultimately deteriorate, then the individuals behind the company, the shareholders and directors, would effectively be safe from creditors and their wrath.

The only thing that you should probably keep in mind is that if you are a landlord trying to get going for the first time, your creditor might insist upon a personal guarantee behind your mortgage, which means that even if the financial situation deteriorates, then they can access your personal assets.


5. Retaining Company Profits


The good thing about making an investment in this fashion is that you are allowed to keep the profits from the company and then reinvest them without having to pay more tax.

See, if you own property as a person, then you need to pay tax on any profit you get from it. It doesn’t matter if you’re using the profits to invest in more property; you still have to pay the tax. However, as a limited company, after corporation tax, which is already lower than income tax anyway, all of the profits that you make can be kept and used for investment.


6. Cheap Stamp Duty When Selling Shares


If a company owns a property and wants to sell it, then it can sell shares of the property rather than actually selling the physical property. This means that they only have to pay 0.5% stamp duty, which is better than the average stamp duty of up to 15%. Obviously, from an investment perspective, this is a far superior choice and is worth considering.


7. Better Loans


If you’re going to try and grow a property portfolio, then you need to make sure that you get the best loans possible. That much is simple, but you can actually use investments through a limited company to your advantage when getting a loan.

If approached by an investor with a strong portfolio of different properties, and it’s all managed through a limited company, then creditors are going to be more likely to try and give you a good rate for a loan because it’s a reliable bet.

If you take the time to manage one single limited company for all of the properties that you have, then you can basically map out your entire investment portfolio with ease, which allows you to work out how different properties are performing, what you can do to improve, and this is all information you can give to an investor to help convince them that you are a worthwhile gamble.


Final Thoughts


To us it’s an obvious choice to invest in property through a UK Limited Company. Monx’s team of experienced accountants can help you take advantage of the tax benefits of this investment method, relieving you of the time and effort needed to run a limited company.

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