#SaturdayShare — SHOULD I BUY PROPERTY THROUGH A LIMITED COMPANY?

Hi everyone, hope you’ve had a fantastic week. In this article, you will find useful information, tips and guidance around investing in property in the UK, and business. Here’s what I want to share this week:

Should You Buy Property through a Limited Company?

I usually get many property investors asking me before are starting out on their investments about what corporate entity should they purchase their properties under? Should it be as a Sole Trader, under a Limited Liability Partnership (LLP), or a Limited Company (LTD) structure?

Many people jump into setting up a company but there are many things to consider from a legal and accounting perspective and hence it’s important to take advice from a professional because changing your structure later down the line can become very expensive and time consuming.

Each individual has a different circumstance and should seek financial advice from an accountant. If you need any recommendations, feel free to get in touch. Before I give you my thoughts on this, I am not a financial advisor, the contents of this article should not be taken as financial advice in any way and are of my opinion only. Now that’s out of the way…

To get started, the first thing to consider is your long term goals and what exit you are looking for. In my case, for example, my exit is DEATH. This is very important to consider when you are first setting out. In the future, other things I may want to consider are things such as inheritance tax if and when I have children. This is also why you need advice from a lawyer and an accountant in setting up the corporate structure. Ignorance can be very costly!

Sole Trader

Upside — Diversity & Flexibility

Downside — Not protected by corporate element and full liability. If you get lending, you are Personally liable.

In the past, when people purchased properties in their name or as a sole trader, they could offset some of the costs against income tax. For example, if you have interest on mortgage, it would be a legitimate cost to business which could be offset against your income.

There are many recent tax changes in the UK where the government does not seem to favour landlords. If you are within a 20% income tax bracket, it won’t affect you as yet, but once you get to the 40% or high rate tax bracket, it starts to get expensive and unviable in many instances.

Currently most people are setting up a business under a Limited Company (Ltd) structure which carries many advantages.

Limited Company

From a taxation point of view, in majority of the cases, this seems to be working out as the most efficient method to purchase the properties under especially when building up a portfolio over a longer term (as mentioned earlier, this shouldn’t be taken as financial advice).

Property Investing should be considered and run as a business, and it’s important to consider that as a business and as an individual, you need to be as tax efficient as possible.

Upsides of a Ltd structure — Corporate protection. The company is its own entity, and ringfences your risk which means if something happens in the company, it won’t affect you personally. Having said that, if you are negligent as a director, and not fulfilling your responsibilities as a director of the company, then this would fall under negligence. For a property, the lending is to the company and not to you personally, and hence the you own the company which owns.

Limited Liability Partnership (LLP)

Suitable for anyone looking to have more than 1 partner within the business. Once again, this may be suitable for you depending on the exit that you plan to have.

Summary

As you can see from the information above, from a liability point of view. If you are looking to buy, refurb and refinance properties and utilise leverage (ie using funding/lending against properties), then purchasing under LTD or LLP could work for you.

I hope this has been an interesting read. Let me know your thoughts and comments below. If you have any questions, please feel free to contact me.

Have a phenomenal day and week ahead!

Thank you for reading.

Manit