According to a survey conducted by Paragon Bank, the number of property owners planning to set up limited companies to purchase buy-to-let properties increased by 50% from the first quarter of 2022 to the second. This is the highest number of property owners compared to the past three years that have said they are thinking of using limited companies.
This blog will discuss the pros and cons of buying a property through a limited company.
What are the pros?
One advantage of buying property through a limited company is that you can save money which is one of the main reasons why investors set up limited companies. The tax percentage is determined by your profit and ranges from 20-45%. Buying property through a limited company means that you will have to pay corporation tax instead, which is much lower than income tax at 19%.
2. Inheritance tax benefit
Buying property through a limited company is an excellent choice if you are looking to pass your property onto your family because it provides more opportunities to reduce inheritance tax.
3. Reinvest savings
Another benefit of buying through a limited company is that you can avoid further tax payments as you can keep your profits in the company after corporation tax and you can then use it to reinvest in other buy to let investments.
What are the cons?
One of the major disadvantages of buying property through a limited company is that there are fewer mortgages available compared to if you were an individual investor.
2. Tax when you take money out
It will also be difficult to take money out of the company. The money must either be received a salary or withdrawn as a dividend. Although you save some money, you may be spending money in other areas too.
3. Transferring properties in your own name is expensive
Another major disadvantage of buying property through a limited company is that it will be difficult to transfer properties in your own name as it is a costly process. You will have to pay all property-related taxes and fees including stamp duty, capital gains tax and legal fees.
It may be a good idea to transfer properties into a company if you own 10 or more rental properties as it provides a more tax efficient solution.
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