Can You Buy Your House Through Your Business?

This is quite a tricky question that needs careful consideration, as there are several pros and cons.

Can you live in a house bought by your limited company?

Yes, but it is not advisable.

If you buy a property through a limited company, you could incur a Benefit in Kind (BIK), which, as an employee of the company, HMRC could consider to be notional pay or fringe benefits. This means they must be treated as taxable income. The current rate is between 20% and 45%.

To avoid being taxed for Benefit in Kind, you’d need to pay full commercial rent to your company.  In this instance, we strongly advise that you consult your accountant or taxation professional.

You also need to remember that if you sell the property, any profits from the sale would be subject to 19% corporation tax, while any gains from privately owned property are usually completely tax-exempt.

For example, if you bought a property for £200,000 and sold it a few years later for £300,000, you could end up with a £19,000 corporation tax bill.

Can you buy an investment or buy to let through a limited company?

Absolutely. In fact, there has been a significant move toward buyers purchasing investment properties or buy to let through limited companies.

Buying a property through a limited company can have certain benefits. For starters, as a private individual, you will pay 45% tax, while a limited company will pay 19%.

Also, private landlords can no longer deduct their mortgage costs from the rental income, which was used to reduce the burden of their tax bill.

What are the main drawbacks of buying through a limited company?

The first problem you’ll encounter is finding a mortgage provider, as many lenders are reluctant to offer mortgages to limited companies. Even if they are prepared to consider an application, they may require the company’s directors to enter into a personal guarantee.

You’ll also find that interest rates are higher because of the implied higher risk. Setting up a company before purchasing your property is advisable, as a Special Purpose Vehicle (SPV) is the preferred choice.

Setting up a limited company first is important because if you have to transfer or sell a property to your new company, you may incur capital gains tax if the property has increased in value, and stamp duty would be payable.

As you can see, there is a lot to consider, which is why we highly recommend that you talk with an expert to ensure that you get the right advice and make the right choices for your circumstances.