Buying Property Through a Limited Company Pros & Cons

real estate rental llc accounting

Undertaking a transfer of property to a company is chargeable to Capital Gains Tax at the market value of the property. Even if you transfer it at lower than market value or gift it to the company it is still subject to CGT. Our all-inclusive service includes everything you need to manage your portfolio’s finances and taxes. Investments in property are not guaranteed and can decrease in value as well as increase.

Your rental income will mainly come from the rent you receive, but it also includes other costs you pass on to your tenants. Examples include cleaning and maintenance charges for construction bookkeeping communal areas and any utility bills included in the rent. You also need to have any portion of your tenant’s security deposit, which you retain at the end of the tenancy.

Buying Property as a Limited Company in Prime Central London – Advantages and Disadvantages

A property investment Co pays corporation tax on the profits made. There is a possibility that owner of a rental property can deduct and mention all the expenses on tax return annually. However, this may not be the case always and current years expenses may not always come on same year’s tax return.

  • The property investment Co can purchase buy-to-let properties, and the mortgage interest and finance costs can be offset against the company’s profits.
  • Owner often pays more income tax than is actually required to pay.
  • If the market price is higher than your original purchase price, you are personally liable to capital gains tax of 18% or 28%, depending on whether you are a basic or higher rate taxpayer.
  • Early redemption charges and increased mortgage costs – Some lenders will charge a repayment fee if you have only just started paying your mortgage off.
  • Everyone on our team loves to talk, especially when it helps people like you find peace of mind.

See “Setting Up a Property Company for Buy-to-Let Purchases” below for some extra information. Our experts will work with you to reduce your corporation, personal or any other tax liability, all within the rules of the UK tax legislations. We’ll ensure you’re claiming all allowances and expense claims that you would be elegible for. If you are going to buy a second or multiple properties to build your property portfolio, you may want to reinvest your income to buy additional properties. I remember a IFA coming up with reams of papers on the benefits of company ownership to convert the rest over to the company. If you die, your family will not necessarily inherit the properties you own or be able to live in them easily — especially if they are tenanted.

Set up a limited company

Another way to potentially cut your tax bill as a landlord is to transfer your assets to your spouse. Capital Gains Tax is generally not paid when assets are transferred between spouses, so you could effectively make use of their lower tax bands. There are plenty of factors to take into account if you want to become a successful buy-to-let landlord, but one that often gets overlooked is tax efficiency. The UK government is set to introduce tax relief for its petrol and oil industries, allowing them to be no longer subject to a 35% windfall fee on earnings if they fall below a predetermined level.

real estate rental llc accounting

However, if you need to live off your rental income (which many small-scale landlords do), then you will need to do the maths to work out whether a limited company reduces your tax bill. Speak to a tax accountant as there are ways you can maximise your tax-efficiency, such as splitting dividends with a spouse who is a basic rate taxpayer. This is much lower than the higher rate (40%) and the additional rate (45%) of personal income tax.