Can You Buy Your House Through Your Business?
, by Matt Stevens
Considering purchasing a home through your business? In recent years, there has been a significant trend toward buying property through limited companies. While this is a viable option, it’s integral to understand the benefits, drawbacks, and overall process before making a final decision.
In this article, we’ll outline the essential details you need to know about buying a house through your limited company.
Can you buy a residential property through a limited company?
Yes, a limited company can purchase residential property. However, this is often not advisable. When a property is bought through a limited company, the company becomes the legal owner, not an individual.
This means the property is held within the company, and the company's shareholders own the company rather than the property directly. Consequently, the company is responsible for managing and maintaining the property, paying related taxes, and addressing any legal issues that may arise.
One potential drawback is the Benefit in Kind (BIK) tax. As an employee of the company, you could be liable for BIK, which HMRC considers notional pay or fringe benefits, subject to tax rates between 20% and 45%. To avoid BIK, you would need to pay full commercial rent to your company. Additionally, if the property is sold, any profits are subject to 19% corporation tax.
Can you buy an investment property through a limited company?
Yes, you can do this using a buy-to-let mortgage, and purchasing an investment property through a limited company can offer several advantages. For instance, private individuals may face tax rates up to 45%, whereas a limited company is subject to a lower corporation tax rate of 19%.
Moreover, private landlords can no longer deduct mortgage costs from their rental income to reduce their tax burden, but limited companies can still benefit from these deductions.
What are the advantages of buying a property through a limited company?
Tax relief: As a landlord, if you own the property personally, you must pay income tax on your rental income, which can be as high as 45%. Although, if the property is owned through a limited company, you pay corporation tax on your profits at a lower rate of 19%. This is because you only pay tax on profits withdrawn from the company.
Claimable expenses: Expenses related to properties bought through a limited company are considered business expenses, which can be claimed back. This includes mortgage interest, making it a tax-efficient option.
Reduced liability: Owning property through a limited company reduces personal liability. The property is not in your name, so if the company incurs debt, you are only responsible for the amount you’ve invested in the company.
Inheritance tax benefits: If you plan to pass your property portfolio to family, buying through a limited company can offer inheritance tax advantages. Your beneficiaries may apply for Business Property Relief, possibly reducing or eliminating inheritance tax on the property.
What are the disadvantages of buying a property through a limited company?
Higher mortgage rates: While limited companies can obtain mortgages, lenders often charge higher interest rates and require a larger deposit due to the perceived increased risk and reduced liability associated with lending to a company.
Limited mortgage availability: Fewer lenders are willing to provide mortgages to limited companies, making it more challenging to secure financing compared to individual buyers.
Taxes on withdrawn profits: To access profits from the company, you must pay yourself a salary or dividends, both of which are subject to income tax. This increases the overall tax burden when withdrawing money from the company.
No Capital Gains Tax allowance: Limited companies do not benefit from the Capital Gains Tax allowance. Instead, profits from property sales are subject to Corporation Tax when withdrawn from the business.
Do you pay stamp duty when buying property through a limited company?
Yes, Stamp Duty Land Tax (SDLT) applies when purchasing property through a limited company. Importantly, buying residential property through a company attracts an additional 3% surcharge above the standard SDLT rate, and non-resident companies will incur a further 2% surcharge on top of the standard rate and the 3% surcharge.
Should you buy property through a limited company?
In short, buying property through a limited company can offer benefits such as increased tax efficiency and limited liability. However, it also involves more administrative work, higher mortgage rates, and fewer mortgage options.
Given these considerations, it's vital to seek professional advice. We highly recommend consulting an expert mortgage broker to ensure you receive the best advice tailored to your specific circumstances.
At The Mortgage Genie, our team of experienced brokers has the market knowledge to assist you in purchasing a property through your business. We will guide you through the entire process and help you find the ideal product for your needs.
Get in touch with us at 01915809890 and we'll connect you with a professional who understands your unique situation. And why not see how much you could borrow up to today by using our mortgage calculator?
