What is a

Limited
(LTD) Company?

A limited (LTD) company means there is a limit on the amount of liability taken by the company’s shareholders. A limited company can give you added protection, should things go wrong. Providing you with the security of not being personally liable for any financial issues that arise with the ‘business’. 

Purchasing property in a personal name means the individual is liable for any debts or legal issues. They will also be subject to personal income tax and capital gains tax on any profits.

Therefore, many people set up a limited company, even if they are the only shareholder, due to the benefits it offers.

The first step of securing a LTD company is finding a company name and ensuring it is available, you can do so on the government availability checker. Once you have chosen a name, you will need to disclose who is director and the shareholder. (both of these can be the same person).

The next stage to registering your company will be to prepare documents stating how the business will operate. A ‘memorandum of association’ is needed, which is a legal statement signed by all shareholders agreeing to the creation of the company. Another document needed is an ‘article of association’. This shows the written rules about how you are going to run the company, which is also signed by the shareholders.

Purchasing property through a limited company can offer substantial tax benefits, particularly in reducing overall tax liabilities. Instead of being taxed on rental income at personal income tax rates, which can reach up to 40% or 45% for higher earners, investors would pay corporation tax, typically at a lower rate. The current corporation tax rate is 19%, though this may change over time.

This approach can also protect from other taxes. For instance, it can help reduce the risk of triggering stamp duty land tax (SDLT) on inheritance or the requirement to pay capital gains tax (CGT) when selling a property. The specific tax will depend on individual situations. The ability to lower CGT and avoid SDLT when transferring shares makes buying through a limited company an appealing strategy for those wishing to protect their investments for future generations.

Inheritance tax (IHT) can also be more flexible with this strategy, offering potential benefits when passing on a property portfolio. One of the main advantages is that the shares in the company, not the property itself, are transferred. This could create significant IHT planning opportunities. Transferring shares may not trigger the same inheritance tax liabilities that a direct property transfer would.

A buy-to-let mortgage for a limited company is a financing option for both purchasing and remortgaging residential properties that are rented out. Fewer lenders will be willing to provide a mortgage for a limited company compared to a personal mortgage. Lenders that do provide a mortgage usually charge higher interest rates due to the limited liability creating a larger risk for lenders. Typically, the deposits required for a LTD company BTL are around 20-25% but can reach up to 45%. 

When applying for a mortgage, lenders will require the SIC codes of your company. They will usually look to make sure it includes any codes related to property investment. Therefore, it might be better for limited companies to get BTL mortgages through a specialist lender as they will provide more options for portfolio landlords. 

Do I have to pay stamp duty when buying property through a limited company?

When a limited company purchases a property, it is still required to pay SDLT, along with a 3% surcharge on all property that costs over £40,000. Additionally, if the company buys residential property worth more than £500,000, the Stamp Duty is set at a flat rate of 15%.

How much deposit is needed to buy property through a limited company?

Typically, the deposits required for a LTD company BTL are around 20-25% but can reach up to 45%. The higher the deposit, the better the rates there will be available.

What are the benefits of buying property through a limited company?

Tax Advantages – Investing through a limited company can offer significant tax advantages, especially when it comes to reducing overall tax liability.

Limited Liability – When you hold investment properties through a limited company, one of the key benefits is limited liability.

Inheritance Planning – Property investing through a limited company can offer more flexibility and potential advantages when it comes to inheritance tax (IHT) planning.

Portfolio Expansion – Holding your profits within a limited company can offer significant advantages when it comes to reinvestment.

Read more about who may advantages and who may benefit from buying through a limited company, here