Owing a Property Through Limited Company or Sole Trader- Which is Better?

Renting or owning a property helps grow the monthly income stream. Moreover, the value should increase to offer a boost after retirement.
However, the tax game can be necessary whether you are a long-established landlord or a new one who wants to buy a property. The first factor to consider is paying taxes as a landlord and renting the property legally.

However, a landlord’s primary concern is whether to buy a property as a sole trader or a limited company. Here, we have enlisted the opinions of both sole traders and limited companies to help you decide the best course of action.

We have examined the options for working as a limited company or a sole trader to help you decide which works better.

Here’s a quick overview of what you’ll find in this article

• Particular Purpose Vehicle Company – What it Means?
• Difference of Owing Company as a Limited Company or
  a Sole Trader
• Limited Company For My Property- What are the Benefits?
• Deduction of Mortgage interest from the income
• Pay Yourself From the Property Assets
• Personal Liability
• Buy To Let Properties and Capital Gains Tax
• Precautions to Stay Alert When Renting Property
  as a Limited Company
• Advantages of Renting A property as a Sole Trader?

Particular Purpose Vehicle Company – What it Means?

A special-purpose vehicle company is the same as any other Limited Company if we discuss HMRC and Companies House.

So, the term SPV refers to a limited company in the mortgage industry. It is specifically used to buy and own properties.

This especially assures lenders that the company is financially secure, so they focus on property. They also look for evidence that the company is not involved in any other activity beyond property things. Any other business activity might affect the company’s financial structure.

Difference of Owing Company as a Limited Company or a Sole Trader

Renting a house or property through a company means the Limited Company receives rental income. The company also pays the tax on the income, known as the Corporation Tax. To take any income out of the business for yourself, you can either pay a salary as an employee or get the dividend tax. Often, a combination of both wage and dividend can be used to optimise tax efficiency.

However, the case differs for a sole trader, where there is no distinction between personal and business finances. Does this seem confusing? Well, there needs to be more clarity as you must pay tax on all income you receive from renting out the property, regardless of whether you take any income for yourself.

Limited Company For My Property- What are the Benefits?

Owning a property as a limited company can be helpful for tax efficiency. However, there are other pros and cons.

Deduction of Mortgage interest from the income

Limited companies can claim tax relief on mortgage income and deduct it from the profit against rental income. This decreases profit and lowers the tax bill, as businesses pay corporation tax on the profits, not the income. Sole traders can also not deduct any cost from rental income (such as Mortgage Interest). Owning the property via a Limited Company can allow you to save the particular income tax rates paid by sole traders or partnerships.

Pay Yourself From the Property Assets

Setting up your limited company gives you flexible options for withdrawing money from your business.

Nowadays, several company owners pay themselves a mixture of salary and dividends to stay tax efficient. This means you contribute to the system, protect your state pension, and access other benefits to minimise tax.

As a sole trader, you’ll pay income tax on all business profits, other than a company owner who only pays income tax on the company they take out of the business.

Personal Liability

Renting a property means a company brings all the usual advantages of a limited liability. So, being a company director, you won’t need to worry about selling your house, car, or any other personal asset as if you were to hit financial trouble. These can still be at risk if you were a sole trader.

Buy To Let Properties and Capital Gains Tax

Individuals who give away their assets will pay Capital Gains Tax on all the profit or gain, following the special capital gains rules for properties. Companies don’t pay any CGT as they already pay tax on their profit.

If you want to grow your company portfolio with several buy-to-let properties, owning them through a Limited company can help. Also, not paying the CGT amount can put more earnings back into the business. It will give you a handy leg up in expanding your property portfolio faster.

It’s a problem, so it’s best to talk to our team about the tax benefits you can enjoy as a sole trader or limited company.

Precautions to Stay Alert When Renting Property as a Limited Company

There are very valid reasons why you should refrain from incorporating your business. Incorporation can reduce liabilities and bring a host of new responsibilities and statutory requirements.

Let’s examine the responsibilities that come under a limited company.

• Register with the Companies House
• Keep updated Company Records
• Filing the articles of association
• Filing of the compliant annual accounts
• Submitting a company tax return to pay the corporation tax
• Report any charges, like writing your name and changing your address.

Advantages of Renting A property as a Sole Trader?

Renting out a property as a company has numerous benefits. Depending on your perspective, operating as a sole trader has some drawbacks.
Obtaining a buy-to-let property as a sole trader can be more accessible despite the hoops to jump through, including fees and affordability.
Switching to a Limited Company demands a cost, and you must pay tax on the money you give yourself out of the company.
Operating as a sole trader means you keep your profit, allowing you to access funds more quickly and easily.

Can property ownership be moved in and out of a company?

If you have a portfolio of several properties and want to transfer them to your new Limited company, you will be surprised by the capital gain tax.

• England and Northern Ireland- (Stamp Duty Land Tax)
• Wales- (Land Transaction Tax)
• Scotland – (Land Transaction Tax) LLT