17/01/2021
Should my properties be held in a limited company? Irrespective of your chosen strategy, you probably want to be operating via a limited company. Now I say ‘probably’ because there are of course exceptions – so as always, talk to a qualified property tax accountant.
Generally speaking, For basic rate taxpayers it’s probably more advantageous to keep investment property in personal ownership and to pay personal income tax on profits through self-assessment, taking advantage of all the allowable expenses and allowances that apply.
For higher rate taxpayers there are definite advantages to owning property in the company. Even though there are extra expenses involved with doing this, which is the stand out reason why this strategy is not recommended for basic rate taxpayers, anyone with rental income of 40k in total, who will certainly easily jump into the higher income bracket, should definitely consider a limited company portfolio.
The big advantage of using a limited company is that as things stand today, you can offset all mortgage interest against rents when calculating Corporation Tax. To be clear, this means not just mortgage interest but also any interest on a business loan. This is a big plus, especially as Corporation Tax is relatively low at the time of writing it is 19%.
As with everything, there are advantages and disadvantages of holding property in a limited company and this boils down to which tax band the investor belongs in and whether she or he is a higher rate taxpayer. Definitely, avoiding 45% tax if you’re a higher rate taxpayer must be a priority, but no one should just assume that buying property through a limited company structure is always the best way to go, and anyone looking to do so should seek advice from an accountant expert.
