Buying property through a limited company by Alex Chrysostomou

14th February 2021

Question: Given the tax changes on investment properties over the last few years, is it better to by properties through a limited company from now on?What are the tax implications around the stamp duty and other changes recently introduced?

Answer: There have always been advantages and disadvantages in owning a property(ies) through a company and given the changes in the tax rules around owning investment properties over the last few years, the question on whether to now start owning a property through a limited company requires more thought.

As a reminder, the main changes (over the last few years) to buying investment properties are that 1) you now have to pay an additional 3% stamp duty on the purchase of a second (or more) home, 2) the wear and tear allowance of 10% deduction of gross rent has been abolished, and 3) from April 2017 onwards, if you’re a higher/additional rate tax payer, the mortgage interest relief is capped to the basic rate of tax. 

These changes effectively mean that we are paying more tax on our BTL investments than ever before. Before deciding on whether to buy a property through a limited company or not, it is important to be aware that the new additional 3% stamp duty includes properties bought through a company, so there’s no getting away from this unfortunately. The 3% stamp duty surcharge is payable on the first property you purchase within a company, even if this is the first ever property you’ve bought!
There are however other advantages to owning an investment property through a company, the main one being that the rental profits are taxed at 19%, rather than 40%/45% if you’re a higher /additional rate tax payer. You are also able to get full tax relief on the mortgage interest costs, as well as any other mortgage related costs. From an earnings point of view, with the current dividend rules, you can declare£2k in dividends each tax year from the company, which, if you own the property say with your spouse, can potentially give you £4k of tax free income each year(assuming you have no other dividend income)! 

Before transferring properties into a company, there are a couple of other matters to consider. Firstly, if you transfer properties you own into a company, there may be a capital gains tax liability due. Also, if there is an outstanding mortgage on the property, you will have to transfer the mortgage to a new product, which could result in early redemption penalties. In this instance, it’s always best to consult with a good financial/mortgage adviser. Finally, you will have to pay stamp duty on the value of the property when you transfer it into the company (plus the 3% on top!), which will be due even though you may be transferring the property(ies) into a company without any exchange in money.

If you have an accounting question for Alex please e-mail him directly he will be happy to assist you, alternatively Alexander Associates offer an initial free consultation please contact them to find out more.
Alexander Associates, 
24A Aldermans Hill, Palmers Green, London N13 4PN Tel: 020 8882 6611 Fax: 020 8882 6621
Email: alex@alexassociates.co.uk
Website: www.alexandersandco.com 

Disclaimer: The information provided in this article should not be construed as legal advice and the information is offered for information purposes only. You should always seek advice from an appropriately qualified accountant on any specific accountancy enquiry.