Buying property through a limited company- what are the tax savings?

Apr 21, 2022

What are the tax savings in buying property through a limited company compared to ownership in your personal name? For higher rate taxpayers the savings are clear. I will illustrate this from an example from additions recently to my own portfolio.

One of my long term letting agents called me a couple of years ago to offer me first refusal on 4 BTL’s that another landlord client wanted to sell. These were 2 bed, modern mid-terrace properties in a West Midlands City. The asking price was £160,000 each with a gross rental income of £750 per month. My mortgage adviser informed me that interest rates were generally 1% more expensive for mortgages to a limited company than to myself personally. I was quoted 5 year fixed interest only rates of 2% in my personal name and 3% in a limited company.

Requiring a 25% deposit on each I borrowed £120,000 per property but before doing so I took the advice I give to clients and put the figures into a spreadsheet to show the tax savings.

Private Ownership Limited Company
Rental Income            36,000               36,000
Interest –             14,400
Other expenses
Letting agent fees –           4,320 –               4,320
Insurance –               800 –                   800
Repairs –           2,500 –               2,500
Accountancy –               180 –                   720
Other Costs –               250 –                   250
Profit (loss) Subject to tax            27,950               13,010
Tax            11,180                  2,472
Interest paid 9600
Tax relief on interest –           1,920
Profits for withdrawal               10,538
Net Tax              9,260                  2,472
Total Net Income              9,090               10,538
Better off in Limited Company               1,448


Okay, so whilst it is not a fortune, over the next 20 years the savings amount to £28,960 just in income tax. Enough deposit for another property? If prices were to double my inheritance tax exposure would be an additional 40% of £640,000 ( 4 x £160,000) being £256,000 if kept in personal ownership. By setting up my company as a Family Investment Company I could reduce this to nil.

I can also pay myself back the deposits I have loaned the company, tax-free, without having to re-mortgage the properties to pull out my equity.

I’m hoping that my son will finally marry his lovely girlfriend and a grandchild comes along. Apart from my unbounded joy, I will gift a very small percentage to my grandchild so that I can pay out another £14570 in tax free dividends. I think that would certainly help with childcare costs and build a pot for future educational needs.

These are just some of the advantages you can easily achieve by holding property in a limited company if you are a higher rate taxpayer. If you’re thinking about buying rental properties and want help in deciding if you should own the property in your personal name or through a limited company then take up my offer of a free 30 minutes consultation. I will go through the pro’s and cons and give you straightforward clear advice based on your actual circumstances.

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