Buying property through a company: yes or no?
The biggest trend that’s taken place during my time in property is the huge and sudden shift to people buying properties within companies.
Up until 2015, it was very much a minority choice: there was no compelling need for many people, and mortgages for companies were much less competitive.
But then the changes to the treatment of mortgage interested introduced in the summer 2015 budget happened – which made the company route far more appealing.
It still won’t be for everyone, but it’s now something that every investor should consider. Getting the ownership structure right could make a huge different to the amount of tax you pay over your lifetime (and beyond) – so let’s take a look at the pros and cons…
(Before we do though, a quick disclaimer: this is not tax advice. I’m just sharing general information – not making any kind of recommendation, except recommending that you talk to a tax professional if any of these issues affect you.)
Are you a trader or an investor?
The first important distinction to draw when making this decision is whether you’re a property trader or investor.
If you buy a property to make value-adding improvements and sell on for a profit, you’re a trader. In this case you’re likely to be best off buying as a limited company.
Why? Because when trading properties as a limited company you will pay corporation tax on your profits – currently 20%. If you’d bought a property to “flip” as an individual, your gains would be taxed as income – which if you’re a higher-rate taxpayer, would be 40%.
(As an individual you might be able to get the profit treated as a Capital Gain rather than income if you could prove that you intended to rent the property out, and maybe did for a short time before selling it, but let’s park that one for now.)
If you buy a property to collect the rent and watch its value creep up over the years, you’re an investor. This is where we get into “it depends” territory: most investors have historically operated as sole traders, but many will now benefit from using a limited company.