Can You Actually Live in a House Owned By Your Company?

Living in a house your company owns sounds tempting, but hold on! It’s not all sunshine and roses.

If you live in a house owned by your own business, the taxman (HMRC) will consider this a ‘Benefit in Kind’. A perk on top of your salary, which means you need to pay 20-45% income tax, depending on your total income level. (Ouch!)

To avoid that hefty tax, you’d need to pay full commercial rent to your company. But even then, there are other potential tax issues best discussed with an accountant.

Selling the house creates another tax hurdle. Profits from selling a company-owned home are taxed at 19%, whereas selling your own home avoids capital gains tax altogether. 

Imagine buying a house for £300,000 and selling it for £400,000 – you’d owe a whopping £19,000 in corporation tax just on the profit!

The bottom line: owning your home through your company creates more tax trouble than it’s worth. 

Keep your home separate from your business for a smoother financial life.

Does It Make More Sense For Investment Properties?

Yes – Purchasing investment properties like buy-to-lets through a limited company has become extremely popular in recent years. And there’s a good reason for it… 😉

The big perk is the tax benefit.

Since April 2020, individual landlords can’t deduct mortgage interest from their tax bills anymore. 

Limited companies, however, still get this as business deduction, lowering their corporation tax further.

On top of that, you pay income tax on rental profits, which can be as high as 45% for individual landlords

But, a limited company pays a flat 19% corporation tax on profits – a big saving!

Another perk is profit reinvestment. Limited companies can keep their profits instead of taking them out as income. 

This allows them to delay paying personal tax until they are withdrawn as dividends, which are taxed at a lower rate than income, especially if they fall within the allowance.

Finally, using a limited company keeps your personal finances separate from your property business

This separation can be helpful for managing risk and limiting your personal liability if something goes wrong with the property.

What Are The Potential Downsides of Buying Through A Company?

While the tax benefits are attractive, buying an investment property through your limited company also comes with some drawbacks to keep in mind:

  • Finding a mortgage is tough. Many lenders are cautious of this structure and might refuse to give you a buy-to-let mortgage or demand personal guarantees from the company directors (meaning you’re on the hook if the company can’t repay).
  • Expect higher interest rates. Even if you do find a lender, they’ll likely charge more for a limited company mortgage compared to an individual one, since they see companies as riskier borrowers.
  • Transferring property can be expensive. If you already own a property and want to move it into your new company, you might face taxes like capital gains tax and stamp duty.
  • More paperwork, more hassle. Owning property through a company means more administrative work. You’ll need to file annual accounts, company tax returns, and deal with extra paperwork. Make sure you’re comfortable handling this before diving in.

Before going down this route, talk to a qualified tax advisor or accountant. They can assess your situation and income to see if the potential tax benefits outweigh the downsides.

Should You Set Up A Special Company For Property Investment?

Investing through a limited company can be smart, but some experts recommend taking it a step further: creating a Special Purpose Vehicle (SPV).

An SPV is a brand-new limited company set up for one purpose only: buying, owning, and managing your rental properties. 

This keeps your property business completely separate from any other ventures you have.

There are two key benefits to using an SPV over your existing company:

  1. Clear Separation – An SPV keeps your property income and records separate from everything else. This makes accounting, taxes, and record-keeping much simpler.
  2. Asset Protection – If you buy properties under your existing company, they could be at risk if that company faces legal trouble or debt collectors. An SPV shields your properties from those risks.

Whether setting up a new SPV is worthwhile depends on the size and complexity of your property holdings. For just 1-2 properties, it may be overkill. 

But for a larger portfolio, it is absolutely worth considering from an organisation and liability perspective.

The Bottom Line

At the end of the day, there is no one-size-fits-all answer for whether you should buy a property through a limited company or not. It depends on your specific goals, income levels, existing assets and overall tax situation.

But armed with the pros, cons and key considerations outlined above, you’ll be better equipped to analyse your options and make a smart decision with the right professional advice. 

Buying property through a company can provide excellent tax benefits–but only if set up correctly from the start.

For personalised advice from a qualified mortgage broker, get in touch with us. We’ll arrange a free, no-obligation call to help you navigate the complexities of buy-to-let mortgages for companies.