Property investment - Should I buy as an individual or through a company?

Whether to buy as an individual or via a limited company is a question that often comes up when people are considering a new property investment. Of course, any financial decision of this kind needs to be discussed with a suitably qualified professional, who can look at your personal circumstances and offer tailored advice.

That said there can be some real benefits to investing through a company. According to thisismoney.co.uk, there are now more than 615,000 buy-to-let properties owned in UK company structures – that’s up 82% in the last 7 years.

One significant reason why some landlords have made this decision is the tax benefit. As the tax burden on individuals has increased – such as with the phasing out of mortgage interest relief and comparatively high rates of Capital Gains Tax – limited companies can still deduct all their finance costs from rental profits and, rather than paying CGT at 20% or 24%, they pay Corporation Tax at a flat rate of 19%.

So, with holiday lets losing tax relief from April next year and no indication from the Government that the financial pressure on landlords will be eased any time soon, we expect to see more and more investors looking at buying through or transferring ownership of existing rental properties into a limited company.

However, operating as a company is not straightforward and it’s not the right route for everyone.

Three key things to consider:

1. Mortgages for properties that are owned by a limited company are usually considered commercial mortgages and they may be more expensive than if you’re borrowing as an individual. So it’s important to work out how much you’d actually be saving by being able to deduct all the mortgage interest, versus having a cheaper mortgage product.

2. Investing via a limited company, you pay Corporation Tax and tax on dividends, and will lose your personal allowances and exemptions. As such, you need to carefully calculate whether you can make savings on the overall amount of tax you pay – or at least ensure you don’t pay any more than you would as an individual.

3. Allocating shares in a limited company can be an efficient way to transfer ownership of a property or portfolio and, if you’re planning to pass on your property assets to your children, this strategy may be more cost-effective than them incurring inheritance tax.

However, it’s important to take into account the set-up and ongoing costs of operating a company. For instance, if you are looking at transferring individually owned properties into a company, you will incur Stamp Duty Land Tax (called Land Transaction Tax in Wales and Land and Buildings Transaction Tax in Scotland) and possibly CGT, and your accountancy and bookkeeping charges may be higher.          

See the Government’s step-by-step guide to setting up a limited company.

If you are considering making the switch to help improve your returns from property, we offer Smart Investment powered by GetGround which can help you form a buy-to-let limited company in around just 30 minutes, then handle all the ongoing admin and accounting for you.

Our in-branch investment experts are always here to help you decide whether it might be worth going ahead, so just get in touch with your nearest office to find out more.