Can I or should I in my own Limited Company? Is it common, what are the risks and basic consequences? Does it only affect commercial property?
For contractors the question of buying property through their own Limited Company arises when considering possible ways to invest their profits. It is definitely possible to do this. Whether it is actually advisable and tax efficient is a different question and can vary from case to case.
Buying a second property in your own name will mean that any rent you receive will be taxed on you personally, using up some of your tax band and thus leaving less availability for basic rate dividends, and any gain you make on the eventual sale will be subject to Capital Gains Tax at either 18% (basic rate) or 28% (higher rate).
If you decide to buy through your company on the other hand, any rent received and eventual gain on sale are both subject to Corporation Tax at 20%. If you are registered under the flat rate VAT scheme then any rent you receive will constitute turnover for VAT purposes, and you’ll have to pay a proportion to HMRC each quarter.
Company ownership considerations
The property will be owned by your Limited Company and will therefore be tied to its fortunes. Should the company experience any difficulty, either legally or financially, then the property would be at risk as an asset of that company. Should you wish to dissolve the company then the property would need to be transferred back to you before this could occur. This would of course involve additional related legal costs and taxes payable.
If the property is your main private residence then company ownership is not recommended.
Firstly, you would incur a benefit in kind, unless you paid commercial rent to the company. Secondly, any gain on selling the property would be subject to Corporation Tax. Under normal circumstances any gain on your own home is usually exempt from tax entirely.
In order to secure a mortgage, particularly with newer Limited Companies, a director’s personal guarantee may be required. If given this takes you out of limited liability protection of your own personal assets.
If this is something you are currently considering then speak to your accountant who will be able to advise you on the best course of action based on your particular circumstances.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.