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There may be tax advantages to letting property through a limited company rather than as an individual depending on your circumstances.  

These include:

Potentially lower rates of tax on income if you are a higher rate taxpayer. 

An individual’s rental profit is taxed at either 20% or 40%/45% depending on their total income.  A company’s rental profit is taxed at either 19% or 25% or somewhere between the two depending on the amount of income. The individual owner of the company will also be taxed on any dividends they take from the company at either 8.75% or 33.75%/39.75% depending on their other income.  There is therefore potential to shelter rental profits from the higher rates of personal tax by retaining income within the company and managing the rate of withdrawal to suit personal circumstances year on year.

Full relief for loan interest instead of restricted relief for residential property.  

An individual’s relief for loan interest paid in respect of rental property is limited to 20% of the interest paid, given by way of reduction in tax payable, meaning that higher rate taxpayers do not get full relief on the cost. 

More flexibility in splitting income between owners.  

The income from property owned jointly by individuals is taxed on the basis of legal ownership which usually means 50:50 unless the property is owned as tenants in common win different proportions.  Dividends paid by a company are split in proportion to shareholding so it is easier to arrange this in different proportions, especially between spouses, which may assist in spreading income tax efficiently.

Is it worth transferring property I already own into a limited company?

There are several costs involved in transferring property into a company, such as capital gains tax, stamp duty and possibly costs related to transferring loans.  Property has to be transferred at current market value so there may be gains already accumulated which will be taxable, and stamp duty will be payable on the transfer at the higher rate for companies.  Loan terms for a limited company may not be as favourable as for an individual.

The answer to the question will therefore depend very much on individual circumstances and going down the limited company route will probably best suit someone who is buying a property with the intention of building a portfolio of properties within the company.  In this scenario this approach limits the initial rate of tax to corporation tax rates, rather than potentially higher rates of income tax, and gives flexibility to manage rates of income withdrawal.If you want more information contact us at info@odaccountants.co.uk or mail@probusinessuk.com, phone numbers 020 3137 9887 or 01749 677989.