Buying your property through a Limited Company needs to be via a Special Purpose Vehicle Limited Company (SPV) – which is solely for the purpose of property purchases/rentals. You cannot use your existing Limited Company unless it is set up in this way.
If you already have a LTD Company and are wondering whether this would meet the SPV criteria, this is what the lenders like to see:
• SIC code for letting property
• No sign of any revenue through the company of anything other than letting property
SIC code - The Standard Industrial Classification of Economic Activities (SIC) - used to classify business establishments by the type of economic activity in which they are engaged.
There are pros and cons with this type of purchase highlighted below:
- Income Tax can be lower as you would take income in the form of dividends which are taxed at a lower rate than personal income taxation. This is mainly beneficial to higher rate tax payers.
- Profits can be retained within the company to further reduce tax liabilities in any given year.
- Shareholders can be added to the company to spread the tax liability.
- No personal annual Capital Gains Tax exemption is available.
- Requirements to comply with Company Law/Companies House, which adds extra costs and administration burdens.
- Fewer lenders in the market and generally higher interest rates.