With a record number of new companies set up by buy to let landlords in 2021, you may think now is the perfect time to buy property through a limited company.
But should you?
Let’s find out in this simple blog.
Here, we’ll discuss the pros and cons of buying a property through a limited company in 2022.
What Are the Benefits of Buying Property Through a Limited Company?
1. You Can Save Thousands When Paying Corporation Tax
Perhaps the biggest reason investors choose to form limited companies is how income is taxed in a company.
While individual investors will pay income tax, which ranges from 20 to 45%, profits held within a company are instead subject to Corporation Tax.
This is significant because Corporation Tax rates are far lower than income tax.
Corporation Tax is currently at a flat rate of 25% after increasing from 19% in April 2023.
Although these savings aren’t substantial for basic-rate taxpayers, investors in the higher tax brackets can save huge amounts of money when they pay corporation tax.
You can learn more about the taxes involved with buy to let by reading our guide.
2. More Mortgage Tax Relief is Available
If you’re a property investor, you’ll know one thing:
Buy to let mortgages can be pricey.
With regular interest payments needed each month and the fact you still need to pay tax, your rental profits can be eaten away.
Previously, UK landlords could deduct mortgage expenses from their rental income and reduce their tax bill.
But tax changes in April 2020 meant this was no longer the case, with individuals now given a tax credit based on just 20% of their monthly mortgage interest payments.
Bummer, right?
Well, not to worry, as this isn’t the case for limited companies.
Instead, limited companies can treat mortgage interest as a business expense, which means they can receive 100% tax relief against their rental property income.
3. Gifting Property Is Easier With Reduced Inheritance Tax
If you’re buying property with the end goal of providing an asset to family members, limited companies might be a practical choice for you.
This is because property held by a company gives you various opportunities to mitigate inheritance tax.
You can do this by using trust structures, shares, and other methods individual landlords don’t have access to.
If you want to form a limited company for property investment, be sure to speak to a specialist advisor to guide you through the process and see if it is right for you.
4. You Can Easily Reinvest Funds After Tax Savings
If you’re thinking of buying a second property to rent out and want to own multiple assets, you may want to reinvest your income.
While individual landlords have to pay income tax on all profits regardless of intentions, it can work differently in a company.
This is because your profits after corporation tax can be kept within the company and directly used to reinvest, helping you avoid further tax payments.
That’s not to mention that due to the tax savings on offer, private landlords have even more money to spend on new properties.
