I often get asked this question by investors and the simple answer is it depends! Everyone has differing circumstances, goals and tax situations, so here are the pros and cons to hep you make a judgement.
Personal Name:
Pros:
1. Simplicity
Owning property personally has fewer administrative and tax requirements and is less complex
2. Access to Personal Allowances
Landlords may be able to utilise personal allowances, such as the annual capital gains tax allowance and the personal savings allowance, potentially reducing their tax liability.
3. Flexibility in Financing
Personal ownership may offer more flexibility in obtaining mortgage financing, as some lenders may have stricter criteria for lending to limited companies.
Cons:
1. Tax Disadvantages
Section 24 results in landlords can’t deduct mortgage interest payments, leading to higher tax liabilities for higher-rate taxpayers.
2. Risk to Personal Assets
Landlords are personally liable for any legal claims or debts associated with their properties, which could put personal assets at risk in case of lawsuits or financial difficulties.
3. Higher Tax Rates
Income from rental properties is subject to personal income tax rates, which may be higher than corporation tax rates for limited companies, especially for higher-rate taxpayers.
Limited Company (Ltd Co):
Pros:
1. Tax Efficiency
Ltd Cos are subject to a corporation tax rate of 25% which is lower than income tax rates for higher-rate taxpayers and mortgage interest is deemed an allowable business expense, mitigating the impact of Section 24.
2. Asset Protection
A Ltd Co provides limited liability protection, shielding personal assets from legal claims or debts associated with the properties.
3. Succession Planning
Ltd Cos offer greater flexibility in terms of succession planning & transferring ownership, so it’s easier to pass properties to heirs or sell the company itself.
Cons:
1. Administrative Burden
A Ltd Co has administrative responsibilities, such as filing annual accounts, maintaining statutory records, and complying with company law regulations, which may involve higher costs and complexity.
2. Restrictions on Financing
Ltd Co ownership may limit access to mortgage financing options, as some lenders have stricter criteria or higher interest rates for lending to companies.
3. Tax Implications
Transferring properties into a Ltd Co can trigger tax implications, such as capital gains tax and stamp duty land tax, which should be carefully considered before making the switch.
As ever, always take professional advice, but also remember that fee making professionals may advise what’s best/easiest for them. You are the CEO of your life and ultimately the decision maker! If you’d like to discuss the opportunity to maximise your property returns then please reach out for a free consultation.