Monday, 3rd March, 2025
If you're a landlord in the UK, one of the most important decisions you'll face is whether to old your rental property in a Limited Company or as an individual (personal ownership). Each option has its own set of advantages and disadvantages, and choosing the right structure depends on your personal circumstances, goals, and future plans.
In this blog post, we will compare both options to help you decide which is best for your rental property business.
Tax Implications: Income Tax vs Corporation Tax
One of the key differences between owning property personally and through a limited company is the tax treatment.
Personal Ownership:
-Income Tax: Rental income is taxed as personal income, meaning that profits from your rental properties will be added to your overall income and taxed at the applicable income tax rate, ranging from 20% to 45% depending on your total earnings.
-Mortgage Interest Relief: Since April 2020, the ability to deduct mortgage interest from rental income has been restricted. Instead, landlords now receive a tax credit based on 20% of their mortgage interest payments, which can increase your overall tax liability.
-Capital Gains Tax: When you sell a property, any gains are subject to Capital Gains Tax (CGT), which is typically charged at 18% or 28% depending on your income level.
Limited Company:
-Corporation Tax: Instead of personal income tax, rental income in a limited company is subject to corporation tax, which is currently 19%. This is often lower than the higher rates of income tax faced by individuals.
-Mortgage Interest Relief: One of the main benefits of owning rental property through a limited company is that you can still fully deduct mortgage interest payments from rental income, reducing your overall tax liability.
-Capital Gains Tax: If you sell a property owned by your limited company, any profits are subject to Corporation Tax. However, if the property is sold and the profits are distributed as dividends, you may be subject to Dividend Tax instead of CGT, which could be more tax-efficient depending on your situation.
Profit Extraction: How Will You Take Your Money?
When considering whether to operate your rental properties under a limited company or personal ownership, think about how you plan to take money out of the business.
Personal Ownership:
-Direct Withdrawals: As an individual, you have complete flexibility when it comes to taking profits from the rental income. You can simply withdraw the money from your bank account without any restrictions or additional considerations.
-Personal Allowance: You can benefit from your personal income tax allowance (£12,570), reducing the amount of income that is taxed.
Limited Company:
-Dividends: If you own the company, you can extract money through dividends. While dividend tax is generally lower than income tax rates, there is a dividend allowance of £2,000, and any income above that is taxed at 8.75%, 33.75%, or 39.35% (depending on your income).
-Salary: You may also pay yourself a salary through the company, which is subject to Income Tax and National Insurance Contributions (NICs). However, paying yourself a combination of salary and dividends can be a tax-efficient strategy.
Estate Planning & Inheritance Tax
Inheritance Tax (IHT) can be a significant consideration for landlords, especially if you own high-value properties.
Personal Ownership:
-Inheritance Tax: If you own rental properties personally, their value will be included in your estate for inheritance tax purposes. The standard inheritance tax rate is 40% applied to the value above the £325,000 threshold (with exemptions for spouses or civil partners). This means your beneficiaries could face a significant IHT bill when you pass away.
Limited Company:
-Inheritance Tax: Properties held in a limited company are not considered part of your estate for inheritance tax purposes, as the company is a separate legal entity. However, the transfer of shares in the company could still attract IHT if they are transferred as part of your estate. Planning around company share ownership can help mitigate this risk.
Limited Liability Protection
One of the primary reasons business owners choose a limited company is the limited liability protection it provides.
Personal Ownership:
-Unlimited Liability: As a landlord operating in personal ownership, your personal assets are at risk if anything goes wrong, such as legal disputes or outstanding debts. in the event of a lawsuit or bankruptcy, your home, savings, and other assets could be at risk.
Limited Company:
-Limited Liability: A limited company provides a level of protection. If your rental property business faces legal or financial issues, your personal assets are typically shielded from claims. Only the assets of the company itself would be at risk.
Administrative and Compliance Considerations
Owning rental properties through a limited company involves more paperwork and compliance than personal ownership.
Personal Ownership:
-Simpler Administration: Operating as an individual landlord is simpler in terms of paperwork and compliance. You will only need to file a Self-Assessment tax return each year, and you are not required to maintain detailed company records or file annual financial statements.
Limited Company:
-More Administration: A limited company requires more complex administrative work. You'll need to file annual company accounts and a Corporation tax return and maintain detailed records of company activities. There are also costs associated with setting up and maintaining a company, including accounting fees.
Conclusion: Which is Best for Landlords?
The decision of whether to operate as a private landlord or a limited company will depend on several factors, including the scale of your property portfolio, your tax position, and your long-term plans.
If you are just starting out, operate on a small scale, or prefer simplicity, personal ownership might be the best option due to its lower administrative burden.
If you have a larger property portfolio or plan to grow your business significantly, a limited company could be a better option, offering tax benefits, limited liability protection, and more opportunities for profit extraction.
Contact Us Today!
For more advice on tax planning, limited company vs personal ownership, or any other property-related matters, reach out to Pro Tax Plus Accountants. We’re here to support your property business success.
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