Property & Real Estate Taxation

Common Questions About Purchasing Property Through A Limited Company

April 4, 2022
Common Questions About Purchasing Property Through A Limited Company

Many property investors wonder whether it is better to buy property in their own name, or to buy it via a limited company. Here are some commonly asked questions.

1. Is setting up a limited company difficult? And what does it involve?

Firstly, you will need to pick a company name and then register your company at Companies House.

To do this, you will need to:

  • appoint at least one director
  • choose who the shareholders are and issue shares
  • prepare a Memorandum and Articles of Association to determine how you will run your company

Currently, it costs £12 to register a new company. This is easy to do and can be done online. The process is swift and you will usually be established within 24 of submitting your application. You will receive a certificate of incorporation. This confirms the company legally exists and shows the company number and date of incorporation.

2. I’m buying my first investment property, should I do this through a limited company?

This is a great question, and it really depends on your future plans as a property investor. If you are a standard rate taxpayer and only looking to rent out one or two properties, then setting up a limited company is probably not the best option. However, if you have more ambitious plans, then it can be cheaper and easier to create a limited company from the outset. Many larger investors use a limited company when purchasing property.

3. If you own property in your own name, is it worth transferring it to a company?

This will depend on how many properties you have. If, for example, you only have a couple of investment properties then it probably won’t be worth switching. If however your portfolio is a large one then it’s definitely worth looking into. Find a good tax accountant, especially one who specialises in property, and they should be able to advise you on what to do next.

You will need to calculate all the costs, as outlined above, and weigh this up against the tax savings you could make.

4. Will my company be able to borrow money?

Yes, but you may find the interest rates are slightly higher compared to personal mortgages, as lenders perceive the risk to be higher.

Expect the loan to value percentage to be lower too. Many lenders ask for 70 per cent for repayment mortgages and 65 per cent for interest only. This means that you will need an even bigger deposit than you have paid in the past for a standard buy-to-let mortgage.

Banks are often more wary of lending to companies as they have limited liability. Because of this limited liability, they may ask you to provide a personal guarantee.

Check out our article Advantages Of Buying Property Through A Limited Company to see some of the benefits of purchasing property through a limited company. You can also keep up to date on the latest Tax Rates and Useful Tax Links 2022/23

Esper Wealth work’s very closely with tax consultants. We are very happy to introduce you to a tax specialist and an independent mortgage broker. They will help you to identify the best option for you. You can find out more on our Funding Solutions page.