The pros and cons of investing in property in your personal name

Brett Alegre-Wood
May 24, 2018

With the tax changes on buy-to-let, it’s no longer an easy decision

There are two major ways to invest in residential property in the UK: as a limited company or as a personal investor. Because of the changes to property tax, particularly to how mortgage interest tax relief is changing, many investors are considering setting up limited companies to either invest in property or transfer existing property portfolios. In this article, you’ll learn about the pros and cons of investing in property in a personal name.

The advantages of investing in property in your personal name

·        Easy to invest in a personal name

It’s generally easier to invest in property in your personal name. You decide on the property to purchase, agree on financing, pay your deposit, and take possession of your investment property. Okay, it’s more complex than this, but generally, it is a process akin to buying your own home.

·        Cheaper to invest in a personal name

There are none of the overheads that are associated with setting up and running your property investment business as a limited company. You won’t need to pay the higher costs of preparing and filing company tax returns (though you will need to complete Self Assessment tax returns). You won’t need to file annual statements at Companies House. Legal fees will probably be lower because they should be less complex.

·        Your mortgage costs may be cheaper

There are more buy-to-let mortgage products on the market for personal investors. This extra competition often means that mortgage interest rates are lower, though as investing in property as a limited company is increasing in popularity, this advantage is waning.

·        You can use your personal income tax allowances

As an individual investor, you can use your personal income tax allowances. If you have no other income, you can earn £11,850 before you start paying tax. If you invest with your spouse, or in joint names, you can double this tax-free income.

·        You can use your capital gains tax allowances

If you sell a property and make a capital gain, you benefit from using your capital gains tax allowance. For 2018/19, this is set at £11,700. As with income tax, if you have invested jointly with your spouse you can use both capital gains tax allowances before paying tax.

The disadvantages of investing in property in a personal name

·        You could pay more income tax as a personal investor

With the tax changes that are taking place, you could find yourself paying more tax as a personal property investor. From 2020, you will not be able to offset your mortgage interest payments against your rental income. Instead, you will only be able to claim tax relief at the basic rate of income tax (currently 20%).

If you are a higher rate taxpayer, you will pay more tax than previously. In addition, because the mortgage interest is not offset against rental income, you could be pushed into a higher rate of tax.

·        You could pay more tax when you sell properties

If your capital gain is more than your CGT allowance, you will start paying tax at either 18% or 28% depending on your personal tax position. This could lead to a higher tax bill than property gains within a limited company structure, which will be taxed at 19% corporation tax today and 17% from 2020.

·        You can take dividends

One way in which you can withdraw profits from a limited company is by taking dividends. Currently, you can take £2,000 each without it being liable to tax. If you are a higher rate taxpayer, you will pay £800 lower tax.

However, should you take dividends above this level, then you will pay tax on them and could end up paying more tax overall:

  • Income tax on dividends over £2,000 and paid to basic rate taxpayers is taxed at 7.5% (so the effective tax rate, including corporation tax, is 24.5% from 2020)
  • Income tax on dividends over £2,000 and paid to higher rate taxpayers is taxed at 32.5% (so the effective tax rate, including corporation tax, is 52.5%)

Summing up

These are the main advantages and disadvantages of investing as a personal investor. Whether to invest in a personal name or as a limited company is not a decision that you should take lightly. While buying and holding property as a personal name could be easier and less expensive, it could also mean you pay more tax.

And this is the crux of the matter today. How to structure your property investment is very much a question of tax, though you should also consider your longer-term objectives. For example, are you looking to expand your portfolio? Do you want to take income from your properties? To make the best decision, you should seek specific and specialised advice.

Contact Gladfish today on +44 207 923 6100 and book a strategy consultation. Together, we’ll assess your current financial position and investigate how your property investment should best be structured.

Live with passion and fun,

Brett Alegre-Wood


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