Now the economy’s opening up, more people are making big choices about their working life, moving away from their current job and following their long-term goals. 

If you’ve always dreamed of building a property portfolio, you may want to go down the limited company route. Here’s why.

Pros and cons of being a limited company

The main attraction of trading as a limited company is the reduction of personal liability.

In the circumstance your company runs into any financial trouble, your personal assets will be safe, as you’re an entirely separate legal entity from your company.

Any debts, losses or legal claims associated with the company are the responsibility of the company itself – not the directors or shareholders.

Being a limited company also means you’ll be monitored and regulated more carefully. Even though this brings more work with it, it means you’re on public record and should be seen as more trustworthy and transparent.

This is useful for attracting potential investors and tenants as well as creating a strong brand identity.

There are also drawbacks from being a limited company, however. For instance, to become a limited company you’ll have to pay to register with Companies House. While the process isn’t too complicated, it’s still more admin work to work to your already busy schedule.

Furthermore,  all of your personal and corporate information will be on public record. If you’d prefer a level of privacy, this may not be an attractive option.

Your accounting processes will be longer and under more scrutiny from HMRC, but an easy solution to that is to hire an accounting firm like Evans & Peters. Your company tax returns and annual accounts can be outsourced, so don’t let the paperwork put you off.

Limited companies for property

Crucially, by registering as a limited company you can be more tax efficient. If you own multiple properties under your name you’ll be paying income tax. 

But under a limited company you’ll be paying corporation tax which is half the cost of higher rates of income tax as of the 2022/23 tax year. While corporation tax is due to increase from 19% to 25% for all profits above £250,000, this is still lower than the 45% rate a sole trader would pay on profits above £150,000. 

As the director of your limited company, you can choose to reinvest your earnings or even pay into your pension. If you want to pay yourself you can do so out of the profits through a mix of salary and dividends, which is more tax efficient than taking a regular salary.

When you start to think about leaving money to your family, it can work out cheaper to transfer a limited company into your inheritance rather than privately owned property.

You may consider expanding your portfolio which is much easier if you retain profits within the company and use them to buy further properties. 

If you keep the profits in your company, they are protected from some tax liabilities, meaning you can pay off any outstanding debts and reinvest easily.

Get a second opinion

The decision to run a property business as a limited company is a big decision to make. Consulting with the experts at Evans & Peters can help you realise if it’s the best for you and your business.

For a free consultation and proposal, please contact us using the form below or call 0117 9675215