Benefits of purchasing a property through a limited liability company

Any experienced property investor will be aware of the benefits of purchasing a property under a limited liability company however until recent years the process and costs involved were generally very unclear and could take several weeks to set up. In more recent years and with the advancement of technology it is now possible to set up a limited company within minutes online through a number of reputable company’s vs the previous methods that were much more costly via a mail process.

The main advantage of buying through a limited company are the tax relief benefits especially for those investors falling into the higher tax bracket. Rather than having to pay income tax on the rent from your property at up to 45%, landlords can take advantage of a limited company that pay corporation tax on their profits which is taxed at a much lower flat rate of 19%.

Another major benefit driving investors to purchase through a corporation is the changes to mortgage tax relief that individuals are now limited to. The amount of mortgage tax relief used to be as high as 45% for those paying the highest rate of tax however since 2020 the amount of mortgage tax relief has been limited to the basic rate of 20% and given as a reduction in tax liability whereas a company can still claim mortgage interest payments as an expense. Owners will also be able to take rental income more easily from the company via dividends or owner loan repayments. Another additional benefit is that as a limited company it is a separate legal entity from your personal affairs therefore you aren’t personally liable for any losses.

Finally, it is a valuable option due to the inheritance tax benefits experienced due to purchasing through a limited liability company. Currently in the UK inheritance tax is 40% of your total estate above £325,000 GDP the benefit when the estate is under a company is that the shares can be distributed and offer more flexibility. Within 24 hours the shares of a property can be gifted or transferred into a relatives or inheritors name allowing for an early option to reduce inheritance tax in the future. When a property is in your personal name and you want to pass it on you have to do so in its entirety whereas with the option in a company you can distribute out shares progressively over time whilst maintaining control.

The last 12 months has been a volatile market for many property investors but by taking advantage of buying through a limited company as well as the stamp duty tax exemption on the first £500,000 of property purchases that is available until June, when the threshold will be lowered to £250,000 until September, before returning to £125,000 this has forced the UK property market to bounce back stronger with annual house price growth at 7.1% and proving to be a worthwhile investment for our clients. For more information and advice on purchasing property in the UK please get in contact via our website.


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