Is registering as a limited company the right choice for your property portfolio?

Nov 17, 2023 | Business

In the intricate landscape of property investment, there lies a big decision that all property owners must make: Should you manage your portfolio as an individual or register as a limited company?

In this article, we will explore the advantages and disadvantages of both options, allowing you to make an informed decision that best aligns with your needs and business goals.


The advantages of registering as a limited company

Tax efficiency

Limited companies currently pay corporation tax, which can be lower than the income tax rates that an individual would be liable for.

By managing your properties through a limited company, you could potentially benefit from a more favourable tax regime.

Personal asset protection

Operating as a limited company means your personal assets are distinct from your business assets. In cases of your business facing financial difficulties or debt, this offers a layer of protection.

Professional image

Having a registered company can enhance your professional standing with potential investors, banks and business partners.


The disadvantages of registering as a limited company

Complexity and cost

Establishing and running a limited company can be more complex and costly due to administrative and regulatory requirements.

Limited (and expensive) mortgage options

While incorporation can make it easier to expand your rental business, a limited company might find fewer mortgage products available compared to individual investors. And the mortgages that are available are over-inflated.


Pros of managing your property portfolio as an individual


Managing your property portfolio as an individual is straightforward and involves fewer administrative hurdles.

Mortgage options

Individual landlords can often access a broader range of mortgage products.

Personal tax allowance

It’s easier to extract profits as a private landlord — you do not need to pay yourself a salary, and go through the complexity of running payroll.


Challenges of managing your property portfolio as an individual

Higher tax rates

You may be subject to higher income tax rates on your rental income compared to corporation tax. This is especially true if you are in the higher tax brackets.

Personal liability

As an individual, your personal assets could be at risk if your property investments face financial difficulties.

Section 24

This tax change restricts mortgage interest tax relief for private landlords, which can lead to higher tax bills.

Mortgage payments are no longer an allowable expense for private landlords — so you can only get a tax credit worth up to 20% of your mortgage interest payments.


Making the decision

So, is registering as a limited company the right choice for your property portfolio? It depends on your specific circumstances.

For property investors looking at long-term gains and expansion, the tax efficiency and personal asset protection offered by a limited company can be advantageous — particularly for higher and additional rate taxpayers.

However, if simplicity and ease of management are your priorities, operating as an individual may be more suitable.

Before making a decision, it’s recommended to seek professional advice tailored to your circumstances.

As your accountant, we can offer insights into your potential tax liabilities and guide you through the nuances of property investment, ensuring that you make a choice that is both informed and beneficial.

We will also help you understand and navigate the potential tax implications of transferring ownership of your properties to your new company.

The choice between registering as a limited company or managing your property portfolio as an individual hinges on a balance between tax efficiency, asset protection and administrative simplicity.

By weighing these factors and seeking professional advice, you can ensure that your decision supports your investment goals.

Talk to us about your property portfolio.

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