Property investing through a limited company – why you should do it.
February 2025
Limited companies offer property investors all sorts of benefits, from tax to estate planning — find out why this should be the right property investment structure for you.
Why should you use a limited company to buy property?
The number of people investing in property through limited companies is increasing every year.
Why?
Should you join them?
After you’ve read this, you should be in the position to answer both of these questions. Essentially, limited companies offer property investors all sorts of benefits, from tax to estate planning.
Let’s take a quick look at those benefits now.
1. Pay less tax
Deduct your mortgage interest, pay less tax
When you invest through a limited company, you can deduct your mortgage interest payments from your rental profits. That means you’ll pay less corporation tax. Here’s a quick example:
On the other hand, if you purchased the property in your own name, you’d pay up to 45% in Income Tax on all your profits, with only a 20% tax credit on your interest payments.
If you’re a higher rate tax payer then here’s what that would save you, based on monthly rental income of £1,000 and mortgage interest of £350:
That’s nearly £3,000 of tax saved over the course of just one year, all because you used a limited company to buy your investment property.
Extract your profits, for less
Here are three ways you can take profits out of your property limited company business, all while saving on tax:
Dividends
There’s a £500 tax-free allowance on dividends, for UK taxpayers. Per shareholder, per year.
Director loan repayments
When you invest in a property through a company, you loan your business that money. So the business can pay you back from its profits, completely tax free.
Pensions
If you contribute to a pension through your limited company, it’s considered a business expense. That makes it deductible from your profits and therefore reduces the amount of Corporation Tax you pay.
All of this is only possible when you invest through a limited company.
Save when you sell
If you invest through a company you have the option to sell shares in the company that owns that property, rather than just having an option to sell the property itself. This leads to savings in Capital Gains Tax.
Plus, if you sold to a buyer who purchases shares in your company, they will only pay 0.5% in Stamp Duty on the value of the shares – rather than Stamp Duty Land Tax on the whole value of the property. This could save them thousands, allowing you to increase your asking price and make more profit from the sale. You’ll earn more, and they’ll pay less, win-win.
2. Simplify inheritance planning
When you invest in property through a limited company, you make the inheritance planning process much smoother and tax efficient.
If you want to leave an investment property that is held in a limited company, then you can gift 99% of the shares in that company to your beneficiary, while retaining control of the company yourself. And then, when you pass away, your beneficiary will only need to pay Inheritance Tax on the remaining 1% of the shares. That means a 1% tax bill compared to buying property in your personal name.
3. Flexibility
With a limited company, you can gift shares however you like. Transfer them to your chosen beneficiaries over a period of years or hand over a 99% stake in the company at once, it’s entirely up to you.
And as long as you make sure you’re the company’s director, you can keep total control of the company even if you gift 99% of the shares away. Leaving you to decide when the time is right.
When you buy investment properties in your own personal name, however, you have none of this flexibility.
How to set up and run a limited company
Think a limited company structure might be right for you? Set up a Free Discovery Call to find out more.
You can have your limited company set up in a matter of days, ready to take your next steps in property investment.
DB Accounts have different packages to suit your needs, ranging from limited company set up to ongoing advice and compliance.
By letting experts manage your accounting needs, you will have peace of mind that your finances are properly managed and it will give you back valuable time by not having to worry about what you need to do.