One of the benefits of having a limited company is that it is classified as its own legal entity. This means that, unlike other company structures, limited companies can purchase property in the business’s name rather than yours.
It’s one reason some people prefer to register as a limited company over a sole trader.
If you’re thinking about purchasing property, whether you’re looking for a place to expand your business, expanding your portfolio or investing – we’ve got all the information you need to know before buying property through a limited company.
Get your finances sorted before you buy
Buying a property is a big financial decision, so you need to make sure that you’ve done your homework and know exactly how you’re funding it and what your budget is.
Just like normal property purchasing, you can choose to buy property through cash (using the available funds of your business!) or through a mortgage.
If you plan on using mortgages to fund the property purchase, you also need to get your income, financial records and credit score up to scratch before you approach a lender (just like you would for a personal mortgage!).
Mortgage lenders will look at a business’s financial records, as well as individual income within the company to see what is affordable and what rates can be offered.
Some lenders have a requirement for a minimum income and need a personal guarantee before a mortgage can be agreed upon. This is a way to prove that if anything goes wrong with your business (i.e. you fold the company), they have a way of receiving mortgage repayments.
If you’re planning to buy a property to rent out, you can also apply for a buy-to-let mortgage. The amount that you can borrow using this method depends on the amount of rental income that you expect to earn from tenants.
In addition, the interest rates and deposits needed are generally higher than a personal mortgage, with 20-25% as the current norm for a deposit. And like with other mortgages, though, the higher the deposit you can offer, the better rates you will receive.
So, it’s generally a good idea to put as much down as a deposit as your business can afford.
To get a better idea of buy-to-let rates and affordability, it’s a good idea to use an online buy-to-let calculator tool for rough estimates and guidelines, like this one from Barclays.
It is worth noting that these work on averages and current guidelines for that particular bank or lender, so don’t take the information presented as gospel.
It’s also worth noting that it can be harder to find lenders for buy-to-let mortgages than personal ones, so if you want to fund using this route make sure that you have the deposit ready and that you are pre-approved with a suitable lender.
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How to find the right property for your company
Limited companies can buy any type of property, for a variety of purposes. This could include:
- Commercial properties to use for your business purposes, like warehousing space, a store, an office, a studio, etc.
- Residential properties as an investment, such as the house that you live in.
- Residential or corporate properties to rent to others. (Remember: If you plan on buying properties to rent out, you will need to apply for a buy-to-let mortgage, rather than a regular mortgage).
But no matter what property type you’re looking for, the process of finding and researching them remains the same.
The three biggest ways to find a property are through:
- Estate agents, particularly those who specialise in commercial property or buy-to-let opportunities. If you’re after something particular, estate agents are a very useful tool to keep an eye on the market and give you a call whenever a matching property becomes available.
- Online property websites, such as Rightmove, Zoopla or OnTheMarket. You can also use these websites to set up alert based on your criteria, such as price, location or property type.
- Auction houses, which have a range of properties that are sold through auction. These can be great opportunities to get properties at competitive prices, but you need to make sure that you do your research before attending.
You could also network with other property investors, developers, and landlords to see if there are any upcoming opportunities that aren’t on the market yet.
Always do your research
Once you’ve found a suitable property, you need to do your research before pulling the trigger. Think about things such as the location and whether it’s in an area that will likely grow in value or demand for your type of business.
It’s also worth looking at local amenities and businesses in the area, which could have a big impact on your property.
You also need to check the condition of the property, including any repairs or works that you might need to carry out. You wouldn’t buy a house without making sure it’s structurally sound, so don’t skip this step for your commercial property.
We’d recommend seeking professional advice for this step, including carrying out surveys or having a financial advisor look over your investment to make sure it’s a good move.
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The conveying process when buying a property through a limited company
When you’ve found the right place and done your research, it’s time to purchase. But just like buying any property, there’s a conveying process that you need to go through before those keys are yours (or more accurately, belong to your business).
Step 1: Instruct a solicitor
The first step you need to complete is to find and instruct a solicitor to purchase the property for your limited company. We’d recommend picking a solicitor who is equipped with knowledge of commercial purchases and has a great track record of working with businesses just like yours.
Once instructed, your solicitor will need to know all the details of the property that you want to purchase, as well as your company and funding information.
Step 2: Company and property search
Armed with the above information, your solicitor will then conduct a company search to verify your company’s status, directors, and any existing charges or debts.
They’ll also carry out searches on the property, including:
- Local authority searches
- Land registry searches
- Environmental searches
- Water and drainage searches
- Other relevant searches depending on the property’s location
During this stage, you can also carry out any other optional searches and surveys on the property that you want.
Step 3: Mortgage approval
If you’re funding the purchase through a mortgage, (or buy-to-let mortgage), the lender assesses the property’s value and your company’s financial health to approve the mortgage.
Step 4: Draft contracts
Provided all the searches don’t bring up anything unexpected, the solicitor will then draft all contracts and documents needed for the sale. This includes the contract of sale, transfer deed, mortgage deed and any other required documents.
Step 5: Exchange of contracts
Once all parties are happy, contacts will be exchanged. This is a legally binding agreement to proceed with the purchase.
A completion date will also be agreed on by all parties. On this date, all funds are transferred and the property becomes legally owned by your company.
You get the keys, and your solicitor will finish the legal process by registering the new ownership with the Land Registry.
The tax benefits of buying property through a limited company
One of the biggest benefits of buying a property through a limited company is that you get access to more tax relief than buying personally if you are buying to let.
Let’s say that Steve is purchasing a property in London, which creates 4 individual flats. It’s in a great central location, with a surprising amount of space. He has tenants already lined up and bags packed to move in.
If Steve purchased this property in his name, the money he makes from rent would be taxed as income.
The rate this is taxed depends on how much Steve earns per year. If his earnings is less than £50,270, he will be taxed 20%. If it’s between £50,271 and £150,000, he will be taxed 40%. And anything over £150,000 will fall under the additional tax rate of 45%.
| Earnings | Tax Band |
| £12,571-£50,270 | Basic Income Tax rate at 20% |
| £50,271-£150,000 | Higher Income Tax rate at 40% |
| £150,000+ | Additional Income Tax rate at 45% |
Anything under £12,571 is tax-free. If you want to know more about personal income tax, read our guide to paying tax as a sole trader.
If Steve was planning on only owning one small property and not working anywhere else – this income might fall under the tax-free allowance.
But the more likely scenario is that he, and other landlords, will be losing between 20-45% of rental income on tax if they purchase the property personally.
However, limited companies don’t pay income tax. Instead, they are liable to Corporation Tax, which is a fixed percentage of 19% for small businesses, depending on their turnover. Less tax paid = more profits for you.
Moreover, limited companies can also class the interest charges on their mortgage as a business expense – allowing them to deduct the cost from profits before you pay corporation tax. Since 2017, private landlords cannot do this option.
Just bear in mind that all profits will belong to your company – so you will have to pay tax on anything you withdraw via a salary or dividends.
As well as the tax benefits, owning a property through a limited company can also allow you to pass on property to family members without paying inheritance tax, provided that they are also shareholders in your business.
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Don’t forget about Stamp Duty
Although buying property through a limited company can offer some great tax relief, it doesn’t eliminate every expense that comes with purchasing property.
That means that you will still be liable for paying stamp duty. I wish we could deliver a better response here (get it, like delivering a stamped letter?).
Can you transfer personal property to your business?
No, you cannot transfer property to a limited company. Instead, you must sell your property and have your limited company buy it from you. This means you will be liable for all the costs of selling and buying properties, such as stamp duty, capital gains tax and legal fees.
So for many people, it doesn’t really make financial sense to sell personal property to your limited company. However, your accountant will be able to go through your unique circumstances to help you assess whether it is worth selling your property to your limited company or not.
Pssst, if you don’t have an accountant yet, we’ve reviewed the best online accountants the UK offers. Find our top picks of online accountants here.
Recommended – Top-Rated Online Accountant:
Not set up your limited company yet?
If you want to purchase property through a limited company, you need the limited company in place before you buy. But this is a relatively simple process to go through – and we’re on hand to guide you through the whole process.
- To start your business from scratch, discover our guide to forming a limited company.
- If you’re already running a business as a sole trader, find out how to transform from a sole trader to a limited company.
If you want to make the experience as easy and seamless as possible, you’ll be interested in our reviews of the top company formation agents in the UK.
Top-Rated Company Formation Agents
| Formation Agent | Cheapest Package | Add On Services | Our Rating | Review | Official Site |
|---|---|---|---|---|---|
 | £52.99 | Excellent | 9.4 | Read Review | Visit Website |
 | £51.99 | Excellent | 9.4 | Read Review | Visit Website |
 | £50 | Average | 9.4 | Read Review | Visit Website |
Using a formation agent means that you won’t have to deal with any of the paperwork yourself, and you can speed up the entire process to get your business up and running as quickly as possible.
