A guide to buying a property through a limited company

When you’re buying a property, you can choose to do so either as an individual or through a limited company.

Each approach has its own benefits, but there’s a lot to consider and the tax implications can be challenging to navigate without a firm understanding of both.

So, if you’re considering making a property investment through a limited company, we’ve summarised the essential information you need to know as a limited company owner.

Advantages of buying a property through a limited company

One of the advantages of purchasing a property through a limited company is the difference in tax that you’ll pay – especially if you’re planning to rent the property, as rental income paid to an individual might push you over a higher rate (40%) tax threshold (£50,270).

However, if the rental income is the profit of a limited company, it will be subject to the lower Corporation Tax rate (19%) on company profits.

Another saving can be made on mortgage payments. By this, we mean you can claim tax relief on mortgage interest for buy-to-let properties. The interest can be offset against the profits from rental income, further reducing tax liability.

Benefits of owning property through a limited company

Additionally, owning property through a limited company means you can find more tax-efficient ways to structure your profit payments, typically through a combination of salary and dividends.

Alongside the tax benefits, you can also reduce your personal exposure to risk, by protecting your personal assets, as liability will be limited to the company.

This means your personal finances are separated from the limited company finances and your personal assets – finances, properties, and so on – are better protected.

Does a limited company pay Stamp Duty?

In short, yes. Stamp Duty Land Tax, often referred to simply as Stamp Duty, is a tax levied on property transactions.

You’ll have to pay it even when transferring or gifting property to a limited company. You’ll pay Stamp Duty on the market value on the date of the transfer, regardless of the sale or transfer value.

The amount you pay is determined by the value of the property, and is applied incrementally, at the rates below (which were introduced during the government’s emergency budget in September 2022; you can see the historic rates here):

Property or lease premium, or transfer value

Stamp Duty Land Tax rate

Up to £250,000

0%

The next £675,000 (between £25,001 - £925,000)

5%

The next £575,000 (between £925,001 - £1.5m)

10%

Any remaining amount (over £1.5m)

12%

Can you live in a property owned through a limited company?

In a word, yes. A formal rental agreement should be drawn up if you choose to live in a property owned by your limited company.

You should pay rent to the company in line with the local market rates, to avoid additional tax liability through a Benefit-in-Kind.

So, property ownership through a limited company has some clear advantages, but there are some caveats and other considerations.

It’s also worth bearing in mind that you’ll need to file annual accounts. And there are other administrative obligations, but a trusted accountant will be able to help you with these.

There’s also the limited availability of buy-to-let mortgages for limited companies, and when you do find one, they can be more expensive. But, all in all, if it’s the route you want to go down, there’s certainly value in setting up a limited company to buy property.

To find out how SJD can help with your accounting requirements, please get in touch.


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