29 May 2019
Landlords: if you’re planning on building up a large portfolio then using a limited company to purchase the property could be a good idea! In this blog post we investigate more about the pros and cons:
Why should you consider buying property through a limited company?
If a limited company owns a property, you get tax relief on the mortgage interest you pay whereas you don’t get this perk if you buy it personally.
The tax you’d pay if you purchased it personally would be 20% of the mortgage interest ... as you can imagine, this can stack up substantially if you have a large portfolio!
Is the buying process different if you purchase as a limited company?
No - there is no difference. You can purchase the property as normal.
Are there any costs associated when buying property as a limited company?
Something you need to consider is the set up fees and accountancy fees that come with a new limited company (if you don’t have one already). If you do need to cover these costs, you’ll have to take into account if the tax saved makes up for these initial fees. For those with larger portfolios, it could be more beneficial in the long run.
Will being a limited company affect my mortgage options?
If you’re in the early stages of property investment, you might find it more difficult to raise capital. There are less mortgage companies out there that work with limited companies and less competition can mean higher interest rates due to fewer options.
Are there costs associated with drawing capital out of the limited company?
Yes - you’ll pay tax on income or dividends at whatever the rate is at the time (although there is a qualifying personal allowance before tax is due). You may find that you decide to leave money in your business account for renovations and new investment opportunities so you’ll only pay corporation tax if that’s the case.
How do you decide what to do with so many pros and cons?
Investing in property through a limited company can be a profitable decision to make rather than doing it personally so we recommend getting professional advice from your accountant or tax advisor to find out if it’s worthwhile for your situation. It could be that you can get more out of your rental income!
We offer competitive rates for portfolio landlords and have our ear to the ground in the Hull area for upcoming investment opportunities. Get in touch with any questions you might have about how we can help you manage your property portfolio.