Navigating the UK Property Market as a Limited Company

Navigating the UK property market as a limited company can be an attractive investment option, particularly when it comes to managing your tax liabilities.

A limited company is a separate legal entity; therefore any assets owned by the company are not personally-owned and ultimately cannot be seized by creditors.

As such, owning properties as part of a limited company has several advantages over purchasing in your own name. Here’s what you need to know.

What is a property investment company?

A property investment company, also known as a special purpose vehicle (SPV), is a limited company set up solely for the purpose of purchasing and managing one or more rental properties.

An SPV allows investors to separate their personal funds from those used to purchase, maintain and rent out their properties. It also enables them to take advantage of favorable tax laws and regulations related to property investments that are not available when investing personally owned property.

Additionally, an SPV offers more flexibility in terms of financing options such as getting access to better loan rates than what is available when investing in personally owned property.

What are the advantages of property investing using a limited company?

There are many benefits to investing in property using a limited company.

Benefit 1: Section 24 Does Not Apply

One of the main advantages of using a limited company in the UK property market is that Section 24 does not apply. 

This means that a limited company can offset 100% of mortgage interest costs, which helps to reduce profits and lower the amount of tax paid. 

Benefit 2: Beneficial for tax

Holding property in a limited company can offer tax benefits for those who are higher rate taxpayers. 

Any rental profits earned from properties held in the company will not be taxed at the personal income tax rate, but rather at the current corporation tax rate, which is generally around half of the higher rate of income tax. 

This allows investors to potentially save money on taxes and keep more of their earnings. 

Benefit 3: Flexibility with profits

When a property is held through a limited company, the directors have more flexibility when it comes to what they can do with the profits. For example, these profits can be reinvested in further properties, saved into a tax-efficient pension or paid out strategically using dividends. 

This added degree of control over how funds are handled makes owning property as a company an ideal option for those who want to plan and save taxes effectively. 

Benefit 4: Better for building portfolios

Owning a property through a company is also better for growing portfolios, particularly for higher rate taxpayers. 

When profits are retained within the company, they are protected from tax liabilities and can be used to fund future purchases without being subject to income tax (until the funds are withdrawn). This means that debt can be repaid faster and investors can expand their portfolios more quickly.  

Overall, owning a property through a limited company may provide greater benefits than personally owned properties when it comes to tax planning and portfolio growth. It’s important to weigh up the pros and cons before deciding which option offers the best value for your needs.

Benefit 5: Inheritance tax and legacy planning

Owning a property through a limited company can also be advantageous for inheritance tax and legacy planning. 

Property held within a company provides more options when it comes to passing on your business to family members. Transferring a limited company is much simpler than transferring privately owned properties, and as the property remains owned by the company, it could potentially be protected from stamp duty, inheritance tax and capital gains tax liabilities. 

Depending on how your company is structured, you could even add your children and grandchildren as shareholders.  Therefore, investing in property through a company may present various advantages when it comes to long-term estate planning compared to personally owned properties.

How to set up a property investment limited company

To set up a property investment limited company, you’ll need to register with Companies House and HMRC. The registration process with Companies House is simple and straightforward: you will need to provide some basic information such as the proposed name of your company, its registered address, the purpose of the business and details of each director and shareholder. Once these details are provided, your application can be submitted online.

Once you have registered with Companies House, you will then need to register with HMRC in order to pay Corporation Tax on any profit that your company makes. This requires information on all taxable activities undertaken by your business as well as details of any income received from tenants or other sources. You can submit this information either through an online portal or by post.

Once your company is registered, you will need to open a business bank account in the name of your property investment limited company. This will be used for all of your financial transactions and must be kept separate from any other personal accounts. As part of this process, you may also want to consider setting up an accountant so that your finances can be managed and monitored effectively.

Finally, it’s important to ensure that you have the right insurance in place for your property investment activities. This should cover both public liability and buildings insurance, as well as any other necessary policies such as employers’ liability insurance if you are planning on hiring staff.  It’s important to make sure that the cover is appropriate for your needs and that the policy will provide adequate protection in the event of an accident or loss.

What are the next steps for property investors

The Limited Company Essentials course is made for anybody that wishes to have a property investment business which includes multiple properties. Find out everything you need to get started with the help of experienced property investors who will tell you the best practice for achieving property goals through a limited company.

Alternatively, make the first steps on your property journey, claim your free Wealth Through Property e-book.

To find out more information about the property investment courses we offer call us on 01302 897131 or email office@touchstoneeducation.li.