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.

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:

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.

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Who must pay and how much to be paid?

The default position is that anyone buying a residential property is liable to pay stamp duty. However, there are exceptions and reliefs available in certain circumstances. If you are to spend £40,000 or more on a house, which is more than likely, then you are likely to pay stamp duty.

Before you immerse yourself in a boggle of numbers, you must first understand that stamp duty only applies past a certain threshold. Which means you only have to pay a percentage applied on a specific portion (consideration) of the total purchase price.

For example, if you are to pay £500,000 for a house and the tax threshold is £300,000, then the stamp duty will apply only to the remaining £200,000.

For first-time buyers of houses

The government makes a concession for first-time house-buyers in England & Northern Ireland. If the house you purchase is £500,000 or less, then the threshold begins at £300,000 where the rest of the amount (consideration) is taxed at a rate of 5%. Therefore, if your first-time purchase of your house is £300,000 or less you owe no stamp duty to HMRC.

However, this concession is unavailable if the house you purchase exceeds a value of £500,000.

Stamp Duty Standard Rates

The rates above are applicable to England & Northern Ireland from 1 October 2021.  Assuming you wish to buy a house valued at £450,000, how much stamp duty do you owe HMRC?

For the first £125,000 at 0% = £0

For the next £125,000 at 2% = £2,500

For the remaining £200,000 at 5% = £10,000

Total owed to HMRC = £12,500

If you already are a homeowner and wish to purchase another property, a separate stamp duty of 3% will apply on top of the standard rates. This is known as a stamp duty surcharge. Similarly, if you are a non-UK resident, you must pay a 2% surcharge even if you are a first-time buyer. If you are a non-UK resident purchasing a second house, you will have to pay both the 3% and the 2% on top of the standard rates. As with first-time buyers, there are concessions available as reliefs (discounts) for other house buyers that apply based on your circumstances.

How did the stamp duty holiday affect the UK property market?

To ease the difficulties faced during the pandemic, the government introduced a holiday on stamp duties in July 2020 to be in place till 31st March 2021. However, it was extended, due to popular demand, until end of June 2021 and gradually reduced to the normal rate by the end of September 2021. The holiday meant house-buyers of residential property in England did not have to pay stamp duty on the first £500,000 of the purchase price.

It is likely that the stamp duty holiday directly resulted in the increase in prices of the UK housing market. For context, the UK House Price Index for November 2021 shows an increase of 10.0% compared to the previous year. The stamp duty holiday helped keep the property market active during a time when the economy was struggling.

It is important to point out that we did not see the property market crash, as predicted by some economists, following the end of the stamp duty holiday.

Contact one of our conveyancing solicitors to know more about the stamp duty you are likely to pay. You can also visit the very informative government website on stamp duty which includes an easy-to-use stamp duty calculator.

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