Do the drawbacks to investing in property by a limited company outweigh the advantages?

 4 disadvantages of investing in property via a limited company

In the first two posts of this blog series, I discussed about the questions that every property investor should ask themselves before deciding whether to set up an investment property company or not and how a limited company structure affects the property investor who plans to take income from your property portfolio.

In this last part, I want to take a look at some of the disadvantages of investing in property via a limited company.

1. Capital gains tax allowances go out the window

As an individual property investor, when you sell a property you are able to make a gain of more than £11,000 before paying any capital gains tax. As a company, such gains are taxable as corporate profits immediately (and at 20%). You may have personal taxes to deduct on top of this if you want to take that profit.

Of course, as we’ve seen before, you can take £5,000 of dividends without a tax lability from a limited company, and the amount of tax payable on other income will depend on your tax position. More calculations to be made to figure out the exact size of this disadvantage, I’m afraid. That's why I always have my accountant as part of my property power team.

2. Fewer mortgage options

The mortgage market for limited companies is far more restricted than it is for individual investors. The loan-to-value amount may also be smaller, too. You’ll need to spend more time researching the market as part of your investment research to find the best solution and don't expect all brokers to really understand lending through a company.

3. Mortgage rates are generally higher

The mortgage rates applied to individual buy-to-let property investors are close to those offered to homebuyers. This is not the case for mortgage rates offered to limited companies. Although this has become a more competitive market, mortgage rates are still higher in this sector; and that means they need to be stricter with your investment property cash flow projections.

4. The costs of running a company

The costs associated with setting up a limited company for investing in property may negate any benefits. You’ll have to get accounts prepared for the HMRC, and filed at Companies House annually. There will be legal fees, company tax calculations and accountant’s fees. You’ll also need to take on the responsibilities of company ownership.

For many people, the advantages of setting up a limited company for investing in property often outweigh the disadvantages. My main advice is always to seek professional guidance.

If you’d like to know more, or have any questions you’d like answered about any aspect of investing in property, don’t hesitate to get in touch with us here at Gladfish on +44 (0)207 923 6100.

Perhaps you’ve set up a limited company for investing in property, and haven’t looked back since? Or maybe you’ve been advised against doing so – what recommendations have you given and why?

Live with Passion

Brett Alegre-Wood

Brett Alegre-Wood
June 24, 2016

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