Should You Buy Property Through a Limited Company or in Your Name?

Should You Buy Property Through a Limited Company or in Your Name?

If you’re thinking about investing in rental property in the UK, you’ve probably wondered: should I buy through a limited company or just in my own name?

Both approaches have their pros and cons, and the right choice depends on your goals and circumstances. Let’s break it down in a conversational way to help you decide.

Why Buy Through a Limited Company?

Buying property through a limited company is becoming more popular, especially among higher-rate taxpayers and portfolio landlords. Here’s why:

The Upsides:

• Tax Efficiency: Rental profits are taxed at corporation tax rates (currently 25% in the UK), which is usually lower than personal income tax rates (40%-45% for higher earners).

• Mortgage Interest Relief: You can deduct 100% of mortgage interest as a business expense, unlike personal ownership where only 20% relief is allowed.

• Retain Profits for Growth: If you’re planning to reinvest profits into more properties, leaving them in the company avoids additional personal tax.

• Inheritance Planning: Shares in a company can be transferred to heirs more flexibly than directly owned properties, which may help with inheritance tax planning.

• Shared Ownership: A company structure makes it easier to divide ownership and profits among family members or business partners.

The Downsides:

• Higher Mortgage Rates: Mortgages for limited companies usually come with higher interest rates and stricter criteria.

• Dividend Tax: When you withdraw profits as dividends, you’ll pay dividend tax (8.75% for basic rate, 33.75% for higher rate).

• More Admin: Running a company means dealing with additional paperwork like annual accounts, corporation tax filings, and Companies House requirements.

• Setup Costs: You’ll need to pay for company formation and ongoing accounting support, which can add up.

• CGT and Stamp Duty on Transfers: Transferring personally owned properties into a company is treated as a sale, which may trigger capital gains tax (CGT) and stamp duty.

Why Buy in Your Own Name?

For smaller-scale investors or those just starting out, personal ownership might make more sense. Here’s why:

The Upsides:

• Simplicity: Buying in your own name is straightforward, with far less admin compared to running a company.

• Lower Mortgage Costs: Mortgages for individuals usually have lower interest rates and more relaxed lending criteria.

• CGT Allowance: When you sell a property, you can use your annual capital gains tax allowance (£6,000 in 2025) to reduce your taxable gain—a perk that’s not available for company-owned properties.

• Ease of Financing: It’s generally easier to secure a loan as an individual, especially if you’re just starting out.

The Downsides:

• Higher Taxes: Rental income is taxed at your personal income tax rate (20%, 40%, or 45%), which can eat into your profits if you’re a higher-rate taxpayer.

• Limited Mortgage Interest Relief: Section 24 rules mean you can only claim a 20% basic rate relief on mortgage interest.

• Inheritance Tax: Properties owned in your name are subject to inheritance tax at 40% (above the nil-rate band), which can complicate estate planning.

• Liability Exposure: Owning property personally means you’re fully liable for debts and legal issues related to the property.

So, Which Is Right for You?

Go for a Limited Company if:

• You’re a higher-rate taxpayer looking to minimize income tax on rental profits.

• You’re planning to build a large portfolio and reinvest profits into more properties.

• You want better options for inheritance planning.

Stick with Personal Ownership if:

• You’re a basic-rate taxpayer or just starting out with one or two properties.

• You want lower mortgage rates and less complexity.

• You’re not planning to reinvest profits and prefer a simpler structure.

Final Thoughts

Both options have their benefits and trade-offs. The best choice depends on your tax situation, investment strategy, and future goals. It’s always a good idea to consult with a property tax specialist or accountant to figure out what works best for you.

At Gauci Magri & Partners, we’re here to help you make informed decisions and optimize your property investments. Reach out to us today for expert advice!

Stefan Gauci Scicluna Director at Gauci Magri & Partners