This is THE big question I hear so many times at networking events or online. So many people become accidental landlords and hold properties in their own name, but the truth is, holding property in a Limited Company can have so many more tax benefits*.
*Disclaimer – This material has been provided for informational purposes only and is not intended to provide legal or accounting advice. You should consult your own legal and accounting advisors before pursuing anything suggested in this post.
So, why is it a bad idea to hold property in your own name?
Below are just four reasons why I believe it’s best to hold property in a company name rather than your own:
- There is the tax treatment. You will pay income tax on any profits that you earn from the property. As a minimum, this will be 20%, but if you are a higher earner, it could take you into the 40% bracket. Both of these are higher than the current Corporation Tax Rates that you would pay as a company.
- You are not able to deduct mortgage interest when you own in your own name, but you can if you hold it in a company. So, you may have a property earning £1,000 a month and be paying an £600 interest-only mortgage. As a company, you would pay tax based on the £400 difference, but as an individual, you will pay tax on the whole £1,000. That could be £200 tax if you are a 20% earner, leaving you £200 profit, or you could be paying £400 as a 40% earner, leaving you absolutely nothing for any repairs, letting agent fees, etc.
- Inheritance Tax is something you definitely want to begin to think about and there are many more options to plan for with a limited company.
- As a company, you are not personally liable for any legal disputes or bankruptcy, but as an individual, if someone doesn’t pay their rent, you could become liable for it all.
Of course, there are some benefits too, such as lower startup costs, more favorable mortgage rates, access to lower rates of Stamp Duty and other benefits based on your personal circumstances and you should always speak to an accountant before making any decisions.
If you currently own in your own name and want to move your properties into a Limited Company, speak to your own financial advisor or tax accountant for the best way to do this to mitigate your tax liabilities (in a legal way of course!).
Did you find this post food for thought? Let me know your thoughts.