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Top Reasons to Consider Buying an Investment Property from a Limited Company

Investing in property is a popular way to grow wealth and secure financial futures. When it comes to purchasing investment property, many people are not aware of the benefits of buying through a limited company from a tax point of view. In this article, we will explore why buying an investment property from a limited company can be beneficial, and provide examples to illustrate these tax advantages.

One of the main benefits of purchasing an investment property through a limited company is the tax advantages that are available. Here are some examples of how buying through a limited company can reduce your tax liability:

  • Corporation tax: Limited companies are taxed on their profits at a flat rate of 19%. This is much lower than the personal tax rates, which can range from 20% to 45%. For example, if you own a property worth £300,000 that generates a rental income of £20,000 per year, you would pay £3,800 in corporation tax if the property was owned by a limited company. If you owned the property personally, you would pay between £4,200 and £9,000 in income tax, depending on your personal tax rate.
  • Mortgage interest relief: Limited companies can deduct mortgage interest payments as an expense, which can significantly reduce their tax liability. This is in contrast to individuals who are subject to the mortgage interest relief restrictions, which have been phased in since 2017. For example, if you own a property worth £300,000 with a mortgage of £200,000 and an interest rate of 3%, you would pay £6,000 in interest per year. If the property was owned by a limited company, you could deduct the full amount of the interest payment as an expense, which would reduce your corporation tax liability. If you owned the property personally, you would only be able to claim a 20% tax credit on the interest payment, which would significantly reduce the tax relief available.
  • Capital gains tax: If you sell a property that has increased in value, you may be liable to pay capital gains tax (CGT). Limited companies are subject to CGT at a rate of 19%, which is again lower than the personal tax rates. For example, if you sell a property that has increased in value by £100,000, you would pay £19,000 in CGT if the property was owned by a limited company. If you owned the property personally, you would pay between £28,000 and £45,000 in CGT, depending on your personal tax rate.
  • Inheritance tax: When you die, your estate may be liable to pay inheritance tax (IHT) on any properties you own. However, if the property is owned by a limited company, the shares in the company can be easily transferred or sold after your death, which can help avoid probate and reduce the IHT liability. For example, if you own a property worth £500,000 and your estate is subject to IHT at a rate of 40%, your beneficiaries would have to pay £200,000 in tax. If the property was owned by a limited company, the shares in the company could be easily transferred or sold after your death, which would help avoid probate and reduce the IHT liability.

In conclusion, purchasing an investment property through a limited company can offer significant tax advantages, including lower corporation tax rates, increased mortgage interest relief, lower capital gains tax rates, and improved estate planning options. It is important to seek professional advice before making any investment decisions, and to consider all the factors involved, including tax, finance, and legal issues.

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