We were recently asked whether one should buy their property through their company, and while I agree that one should, it really does depend on ones circumstances. for example I could only recommend it if you plan to buy a few properties. I would also suggest you don’t purchase a property through the company you are currently trading through, instead you should create another company (Investment company or sometimes known as ‘Special Purpose Vehicle). I’ve gone into more details below, enjoy the read.

Trading company vs investment company

If you hold significant properties through your company, you could be classified as a investment company as opposed to a trading company. This simply means that you will have less generous rules with regards to the expenses you can claim.

An investment company will also not be entitles to entrepreneurs relief if you choose to close your company down in a tax efficient manner.

Assets at risk

One of the benefits of an investment company is that there is limited liability on you personally. This means there will be no liability on you, your family and household.

However, this also means that your properties will be at risk if your company is indebted and owing. For example, if your company was sued for negligence.

Stamp duty

The stamp duty rates for companies can be higher than for individuals, see the HMRC link below:

https://www.gov.uk/guidance/stamp-duty-land-tax-corporate-bodies

Double taxation

One of the disadvantages is that you will pay taxes twice. You will taxes corporation tax on profits gained from renting out the property. You also have to pay taxes on capital gain is made once you sell the property. Once you extract profits from the business for personal you, you also have to pay self assessment tax.

When it comes to capital gains tax, as an individual you have an annual capital gains tax free allowance, but companies don’t have these.

Benefit in kind tax

If you want to use a property personally that is owned by your business then you will be taxed on this as a benefit in kind and have to report it on an annual p11d return.

If you own the property personally this would not apply.

Should you purchase the property personally?

If you choose to purchase the property through a second limited company then you could choose to lend some money from your trading company to your investment company – although there are various hurdles and pitfalls with this so we’d recommend you discuss this with an accountant.

Having another limited company will mean additional administrative costs for the annual accounts and tax returns and is also likely to mean higher legal fees due to the additional complexities of the property being purchased in this way.

Our general advice tends to be that if you are looking at only one or two investment properties, it is usually a lot simpler to purchase them personally – however property companies can be useful if you are building a portfolio of many properties which is why a lot of professional landlords and developers run their businesses through companies.

Other uses for retained profits

With regards to the retained profits in your business – you might want to consider employer pension contributions as these tend to be a very tax efficient way to invest surplus profits, however it does tie up the cash until later in life.

Also it is worth pointing out that having a decent amount of retained profits in your business can be a very good thing when it comes to financial security as it can allow your company to carry on paying you during periods of lower earnings.