Property investment is a popular route for generating income and building long-term wealth. In recent years, more landlords and property developers have chosen to run their businesses through limited companies. But what exactly are the benefits of taking this route? Let’s explore the key advantages.

Tax Efficiency

The potential tax advantages are a major attraction for property investors who choose to operate through a limited company. Unlike individual landlords, limited companies pay corporation tax on profits, which is generally lower than higher income tax rates. This allows landlords to retain more earnings, particularly as their property portfolio expands.

Additionally, profits left in the company can be re-invested in new properties or renovations, further enhancing growth prospects before personal taxation applies when extracting income.

Mortgage Interest Tax Relief

Since April 2020, individual landlords have faced restrictions on the effective amount of mortgage interest they can deduct from their rental income, with relief now provided as a basic rate tax credit. However, limited companies can still deduct the full mortgage interest as a business expense before tax is calculated, potentially saving significant sums for highly leveraged portfolios.

Succession Planning and Inheritance

Transferring property assets held within a limited company can be more flexible than properties held personally. Changing company share ownership can make it easier to pass wealth on to children or other heirs and can sometimes enable tax-efficient succession planning (but you must take personalised advice in this and other areas before acting).

Limited Liability

Operating as a limited company provides a level of financial protection. The company is a separate legal entity, so shareholders’ personal assets are generally shielded from business liabilities or debts, potentially reducing personal exposure.

Professional Image and Opportunities

A limited company structure can boost professionalism and credibility when working with lenders, investors, and other property professionals. It may also open opportunities for commercial finance products or joint ventures not accessible to private individuals.

Easier Management of Joint Ventures

Pooling funds and sharing ownership with others can be managed more transparently through company shares, reducing potential disagreements and clarifying each party’s involvement.

Final Thoughts

Although the benefits could be significant, managing a property business as a limited company isn’t suitable for everyone. Expenses, administrative duties, and particular tax considerations require careful evaluation. However, for landlords and property developers aiming to expand a substantial portfolio or transfer assets, a limited company could provide notable advantages.

(Always consult with a qualified accountant or tax adviser before changing your property investment structure. Transferring properties into and out of corporate ownership can incur significant tax charges. Always ensure you have advice tailored to your particular situation.)