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Are there benefits to investing in property through a limited company?

With the various changes to the UK property market and property taxes over the last 18 months, UK-based property investors are now considering the prospect of using a limited company for their property investments. Many investors believe that the use of a limited company may be better for them financially when compared to their current situation as a private investor.

One of the biggest issues that investors have faced is the changes to the way that mortgage interest relief works, having a big impact on the amount of money that can be generated. However, with a limited company many of the laws are different and mean that a limited company may offer some value to investors.

As is the case right through the property investment sector, it is advised that the use of a limited company is thoroughly researched before any decisions are made, especially as results are based purely on individual investors and their own property investments.

Limited company property investment considerations

One of the biggest benefits of using a limited company for property investment purposes is that they are considered to be more tax efficient, especially following the most recent round of tax changes. Tax laws that are currently associated with property investments do not apply when transferring property over to a limited company and this is why most investors consider this option.

The benefits
  1. Mortgage interest relief changes don’t apply to limited companies, which means that mortgage interest can still be thought of as a tax-deductable cost, (no longer the case for private investors).
  2. Using a limited company means that, as landlords are often in the higher tax bracket, they will be taxed at 40% privately, whilst limited companies would be subject to corporation tax, which is set at just 19%.
The drawbacks
  1. You will also be required to pay dividend tax when taking dividends out of the company, which will have been generated from your property investments, further reducing the profit that you have made.
  2. The amount of tax-free dividend that you can claim has now reduced from £5,000 to £2,000, meaning that you will lose more profit than limited company owners have previously.
  3. When you transfer your properties over to your limited company, it is considered as a sale and they are therefore subject to Capital Gains Tax, although it may be possible to claim incorporation relief to minimise this.

This article was written and contributed by Mark Burns, Hopwood House

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances; it is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Hopwood House directly.

Published on 30th April 2018
(Last updated 7th July 2023)