A property lawyer will be able to give you multiple reasons for and against purchasing property through a limited company. More so if it is a residential property that you wish to purchase. Chances are, you might find yourself needing residential property for a function of your business. The legislation surrounding purchases of residential property is different for limited companies compared to individuals. The tax rates can either have you questioning the sensibilities of the government or praising them for it. In other words, the benefits (or the drawbacks) can be significant, but you need to fall under certain circumstances.
Stamp Duty Land Tax for Entities
Undoubtedly the biggest factor to consider in purchasing property is the obligations presented in the conveyancing process. The government feels it’s best to ensure that the residential market serves the private owner first and the company second. As a result, the biggest tax involved with the purchase of residential property –the Stamp Duty Land Tax, is slightly higher for companies. No matter the circumstances or cost of the residential property, you must pay at standard rates (as below) with a 3% surcharge on top.
| Up to £125,000 | Zero |
| The next £125,000 | 2% |
| The next £675,000 | 5% |
| The next £575,000 | 10% |
| The remaining amount over £1.5 million | 12% |
However, it is not over with the 3% surcharge alone. If the property you purchase costs over £500,000 then you must also pay another 15% on top. Assuming you purchase a £600,000 residential property through a company, you will be paying the following:
Up to £125,000 £0
Next £125,000 £2,500
Next £675,000 (Up to £400,000) £20,000
Surcharge of 3% £18,000
Surcharge of 15% £90,000
Total SLDT £130,500
Yikes.
So why would you realistically consider purchasing residential property through a limited company when you could do so as a private owner? A competent conveyancing solicitor will advise you based on your circumstances. However, how much you pay based on your circumstances improve dramatically when the purpose of your purchase is for one of the following:
• acting as a trustee for a court settlement
• running a property rental business
• buying property as property developer and trader
• buying property made available to the public
• financial institutions acquiring property when lending
• property occupied by employees
• buying farmhouses
• buying a qualifying housing co-operative
Why Buy Residential Property?
Again, a competent conveyancing lawyer will give you enough information to satisfactorily answer the why. Especially when, even with the best-case scenario, you pay more tax when you purchase property as a company compared to doing so as a person. There are no discounts, stipends, or allowances with concern to the SDLT on purchases via companies.
Then, why?
The benefit comes from the tax payable on your income. You may dish out significantly more pounds to purchase residential property as a company but save as a result of paying less income tax. Over the years of a functioning business, you could potentially save hundreds of thousands of pounds in tax liability. For context, the following table shows the rate of taxation for individuals:
| Up to £50,000 | 20% | |
| Next £100,000 | 40% | |
| Over £250,000 | 45% |
Whereas for a limited company, the tax rate which applies is the corporate tax rate of 19%, set to raise to 25% by 2023 for companies earning over £250,000 per annum. Further, individuals cannot deduct their mortgage expenses as a cost whereas companies absolutely can treat it as a cost of doing business. For a buy-to-let business, purchasing property through a limited company is the advisable option. You do pay the 3% surcharge, but so long as the property is £500,000 or less, you can make that back with the savings on tax payable.
Admittedly, there are more scenarios and complications beyond just buying property to let. To be best prepared to make the ideal decision, you will need to seek professional advice. You can reach out to Phew Conveyancing for all your needs and for the best experience in online conveyancing.
