Deciding whether to buy investment property under your name or through a limited company is more than just a legal formality—it’s a choice that could significantly impact your finances and long-term goals. Here’s a straightforward guide to help you navigate the pros and cons of buying in a Ltd vs. Personal Name.
Ltd vs. Personal: What’s the Difference?
First-time buyer or seasoned landlord? Either way, you must understand the key differences between owning property personally or through a limited company.
If you buy property personally, you’re on the hook for everything. This means all debts, legal issues, and the tax man’s share fall squarely on your shoulders. You’ll pay income tax on rental profits and capital gains tax if you sell for a profit.
On the other hand, buying through a limited company means the company holds the property, shielding you from personal liability. However, this route comes with more admin and paperwork, plus you’ll pay corporation tax on the profits. It’s crucial to weigh the tax implications of both routes before making your move.
Tax Implications: What to Expect
Regarding taxes, private owners and limited companies face various costs at different stages of property investment. Here’s a breakdown:
- Stamp Duty Land Tax (SDLT): Whether you buy personally or through a company, you’ll pay a 3% surcharge.
- Capital Gains Tax vs. Corporation Tax: Sell a personally owned property, and you’ll pay capital gains tax. Rates depend on your tax bracket—18% for basic rate taxpayers and 28% for higher and additional rate taxpayers. In contrast, limited companies pay 19-25% corporation tax on profits.
- Income Tax vs. Corporation Tax on Rental Income: As a private owner, you’re taxed based on your income tax band, which ranges from 20% to 45%. Limited companies, though, face a 19-25% corporation tax on profits, potentially offering a tax-saving advantage.
- Inheritance Tax (IHT): Inheritance tax rules apply equally whether you own property personally or through a company. However, for limited companies, the tax is levied on the value of the shares, which can be advantageous in estate planning.
Buying Property Personally: What You Need to Know
Opting to buy property under your own name? Then, all rental income will be subject to income tax after deducting allowable expenses. Here’s a quick look at the tax bands:
- Up to £12,570 – 0% (Personal Allowance)
- £12,571 to £50,270 – 20% (Basic rate)
- £50,271 to £125,140 – 40% (Higher rate)
- Over £125,140 – 45% (Additional rate)
But be aware—due to Section 24, you can no longer fully deduct mortgage interest as an expense if you own the property personally, which can significantly increase your tax bill if you’re in the higher tax brackets.
Buying Property Through a Limited Company
If you go down the limited company route, the company buys and owns the properties. The good news is that all mortgage interest is tax-deductible, reducing your taxable profit.
Advantages of a Limited Company
- Tax Efficiency: Especially beneficial if you’re a higher-rate taxpayer. Instead of paying income tax on your rental profits, you’re taxed at the (usually lower) corporation tax rate.
- Financial Flexibility: As a company director, you decide how to manage the profits. Reinvest in more properties, pay yourself a tax-efficient salary, or take dividends.
- Portfolio Growth: Retain profits within the company, and you can expand your property portfolio faster—tax-efficiently.
- Inheritance Planning: Owning property within a limited company can provide more flexibility in passing on your assets, potentially reducing tax liabilities.
Disadvantages of a Limited Company
- No Capital Gains Tax Allowance: When selling through a limited company, you miss out on the tax-free capital gains allowance (£3,000 for 2024/25) that personal owners enjoy.
- Double Taxation: Profits are first taxed at the corporate level. Then, if you take dividends, you’ll face additional personal tax on that income.
- Higher Mortgage Costs: Mortgages for limited companies often come with higher rates and fees.
- Complex Accounting: More paperwork, more complexity. Running a limited company means you’ll need to keep detailed records and file annual accounts with HMRC.
Conclusion: Making the Right Choice
In short, a limited company could be innovative if you aim to build an extensive portfolio and want to benefit from lower tax rates. However, personal ownership might be more straightforward and cost-effective if you only plan to own one or two properties or are in the basic rate tax bracket.
Always seek professional tax advice tailored to your situation before making major investment decisions.
Ready to make informed mortgage decisions? Contact us for expert guidance. Our experienced team of mortgage specialists is here to assist you every step of the way. Whether you’re a first-time landlord, a portfolio landlord or looking to refinance, we can place you with the right experts to provide personalized advice tailored to your needs.
