There are several ways that you can buy property in the UK. If you wish to buy property and take personal residence, you may wonder if there are ways you can purchase that property that helps you cut back on costs and taxes.
You could buy the property through a personal mortgage or opt for another type of mortgage, with limited company mortgages being a popular option.
According to the Office for National Statistics in 2021, around 62.5% of households own the accommodation they live in with around 37.3% renting property.
If you have a limited company in the UK that owns property, you may wonder if you can take residential occupation of the property.
The answer is yes, you can live in a house owned by your limited company, but it’s not recommended.
If you don’t understand tax and how mortgages work, you may want to consult a mortgage advisor before purchasing a property through your limited company for personal occupation. That’s because things can get a little tricky.
Understanding how to purchase property through a limited company will help you better understand if it’s a process that’s worthwhile for you financially or not.
Benefit in Kind (BIK)
One of the first things you need to know is that if you’re residing in a property that’s acquired through your limited company, it may be seen as some kind of perk.
The one you need to know about is the “Benefit in Kind” scenario.
Benefit in Kind is something that may apply to you if you choose to live in a property that you purchase through your limited company.
As an employee of your company, living on the property may be seen as notional pay or fringe benefits by the HMRC. And fringe benefits and notional pay are taxed at a rate between 20% and 45%.
Of course, you can get around this taxation, but you’ll then need to pay full commercial rent to the limited company.
25% corporation tax will also apply if you choose to sell the property in the future, where this tax amount doesn’t apply to a personal property sale.
Is it Possible to Buy Investment Property or a Buy to Let Through a Limited Company?
Many people use their limited company to buy a buy to let property or investment property. There are some benefits to expect.
For instance, when buying such a property through a company, the corporation tax is 25%, whereas when you buy a private property personally, the tax is 45%.
Private landlords can no longer subtract the cost of a mortgage from rental income, whereas this is possible with a company.
Disadvantages of Buying Property Through a Limited Company
One of the biggest challenges you’ll face is that not many mortgage companies are keen to offer limited companies mortgages.
In some instances where it is possible, the mortgage company may expect the company directors to provide personal guarantees on the home loan.
Mortgage companies see mortgages for limited companies as a higher risk than a personal mortgage, which may be reflected in the higher interest rates.
There’s also the possibility of incurring capital gains tax if you have to sell a property to your new company and that property has increased in value.
Overview of Pros and Cons of Buying Property Through a Limited Company
A general understanding of the pros and cons of buying property for personal use through a limited company can help you determine what the best course of action is for you.
Pros:
- Tax savings
Buyers can cut back on tax by buying property through a limited company.
For private landlords, the profits are taxed through income tax, shares, dividends, and salaries between 20% and 45% whereas property bought through a limited company comes with lower corporation tax at 25%.
- Mortgage tax savings
Limited companies that own property can treat interest charged on the mortgage as an operating expense, which means you could get a 100% relief on the income.
Cons:
- Fewer options
Not all mortgage providers will approve loan applications for property through a limited company. With fewer options, it’s harder to find a mortgage package that perfectly suits your situation.
- Tax
When you take money out of the limited company, you’ll face a few challenges in terms of withdrawals and tax implications. The money needs to be taken out as dividends or a salary.
In terms of dividends, the first £2000 is free from tax, but anything above that will come with costs between 8.75% and 39.35%. This is tax over and above corporation tax.
Reduced dividend exemptions are expected from April 2024.
In terms of salaries, PAYE and national insurance contributions are expected and these can be higher than the tax fees charged on dividends.
- Property transfer costs
If you own private buy to let properties, you won’t be able to transfer them to your company cost-free.
The transaction is seen as a regular buy/sell, which means the traditional costs involved will apply, including mortgage repayment costs, legal fees stamp duties, and capital gains tax.
Can I Live in a House Owned by My Limited Company? Conclusion
Deciding whether to purchase a property privately or through a limited company is a decision that affects you financially for the long term.
It’s a good idea to speak with your account or tax consultant and to also get some guidance from a professional mortgage broker or advisor with experience in the field.
With the right advice and guidance, you’ll be able to decide what type of mortgage route is best for you in your current situation.
Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.
