If you’re thinking about purchasing a property – particularly for investment purposes – one key decision you’ll need to make is whether to hold it in your own name or via a limited company. This choice can significantly impact your tax position, finances, and administrative duties, and there isn’t a universal answer that suits everyone.

Here are some key points to consider:

Tax on Profits
A frequent reason investors opt for a limited company structure is the difference in how profits are taxed.

When property is held personally, rental income is taxed as personal income. For higher-rate taxpayers, this could mean rates of up to 45%. In addition, mortgage interest relief is restricted under current legislation, preventing full deduction of finance costs.

In contrast, limited companies pay corporation tax on rental profits, and mortgage interest is generally allowable as a business expense.

However, extracting funds from the company – usually through salaries or dividends – often incurs additional tax, so the overall benefit depends on your intended use of the income.

Tax on Sale of the Property
If you later sell the property for a gain, the treatment of Capital Gains Tax (CGT) differs depending on ownership.

Individuals benefit from a CGT annual allowance, and the tax rate applied varies based on income and property type. Companies, meanwhile, pay corporation tax on the profit, with no CGT allowance – and different rules can apply to how gains are calculated.

Which is more efficient depends on your strategy – whether you’re accumulating wealth within a company structure or aiming for personal access to sale proceeds.

Mortgage Options and Associated Costs
Securing a mortgage via a limited company can be more complex. Fewer lenders offer such products, and the rates are often higher. Directors are typically asked to provide a personal guarantee as part of the process.

Administrative and Legal Duties
Operating a limited company comes with additional responsibilities. Annual accounts, corporation tax returns, confirmation statements, and proper record-keeping are all required.

If you’re already managing a business, this may not present a major hurdle. If not, it’s essential to weigh up the time and potential costs involved.

Inheritance and Passing on Assets
Holding property within a company structure may provide greater flexibility when it comes to passing on wealth. Company shares can usually be gifted or transferred more easily than the property itself – although careful planning is still needed to avoid unwanted tax consequences.

Which Option Is Right for You?
Ultimately, the most suitable route depends on your objectives. Do you need access to the income now? Are you reinvesting for growth? Do you prefer simplicity, or are you planning for future generations?

There’s no single right answer – and tax legislation can evolve.

We offer a ‘Property – In or Out?’ tool to help assess whether holding property inside or outside a company makes the most sense for your situation. If you’d like guidance, please don’t hesitate to get in touch – we’re here to help!