Can a Company Buy a House for a Director?

Buying a house will likely be the biggest purchase you will make in your lifetime. It can be extremely hard to find the right place and get the finance lined up. That’s why so many people who run businesses explore the option of the director living in house owned by company.

But just how feasible is this, and can your company buy you a house to live in when you are the director? Here’s a short answer first, but as with anything relating to business, it won’t be that simple

Can a company buy a house for a director? Yes, a company can buy house for a director to live in. But the accounting and tax treatment of the transaction is driven by how the house is purchased and whether the director pays rent. This makes it a very complex area.

If you want to buy a house to live in through your limited company, you need to be aware of the pitfalls. In the guide below, we will walk you through the practical, financial and tax considerations of buying a house for a director via a business. You can then make an informed decision about whether it is worth living in a property owned by your limited company.

Can I live in a property owned by my limited company?

Sometimes life doesn’t quite go to plan, that’s what makes buying a house so stressful. There are so many things outside your control, you wish there was something that could help but then you have a brainwave: “can my limited company buy my house”?

And the simple answer is, yes, you can live in a property owned by your limited company. 

There are many situations where this would make sense. For example, let’s say someone who has been through a divorce and requires somewhere to live and can’t get a mortgage, but their company has funds and could get a loan.

Not only can this provide that person with a footing to get them back on their feet, but it can be a cost-effective way to do it. Employer-owned property rather than rented property uses Gross Rating Value for the calculations of the benefit in kind. These figures are normally low meaning a much lower benefit.

As an employer providing accommodation for your employees, you have certain tax, National Insurance, and reporting obligations.

What’s included

As well as the costs of the accommodation itself, this includes:

• Council Tax.
• Water and sewerage charges.
• Heating, lighting and cleaning.
• Repair, maintenance, and decoration.
• Furniture for daily use.
• Staff for upkeep of accommodation, for example gardeners and cleaners.

There are two different scenarios in this case which we have gone into further detail below, being whether you live in the house rent-free or rent it from the company.

Each scenario where you live in a property owned by your limited company will present different tax consequences and you will need to consider which works best for your personal and business circumstances.

Can my company buy a house for me to live in?

The provision of living accommodation for a director, employee and/or members of the employee’s family or household gives rise to a taxable benefit unless the accommodation is exempt.

Exempt accommodation

You do not have to report or pay anything to HM Revenue and Customs (HMRC) on the cost of certain types of accommodation.

Accommodation at the place of work is exempt if:

• The company’s employees cannot do their work properly without it, for example, agricultural workers living on farms
• An employer is usually expected to provide accommodation for people doing that type of work (for example a manager living above a pub, or a vicar looking after a parish)

A director living in house owned by company

If you provide the accommodation to company directors who live in the house owned by the company, they must be either full-time or work for a non-profit or charity organisation and hold less than 5% of the shares.

If the accommodation you provide is exempt, you do not have to report Council Tax, water, and sewerage charges to HMRC, or pay National Insurance and tax.

If the accommodation provided is not exempt, you must report it to HMRC, via a form P11D and pay Class 1A National Insurance on the value of the benefit.

Working out the value of the benefit in kind can be tricky. Use this guide on how to work out the value of benefit in kind on living accommodation.

Use HMRC’s P11D working sheet if you need help working out the cash equivalent of accommodation benefits.

The employer will pay Class 1A National Insurance contributions the employee must pay tax on the value of the benefit in kind. After a P11D has been submitted to HMRC they will adjust the employee’s personal tax code to claim the money back through PAYE.

Can my company buy a house and rent it to me?

Yes, a company can buy a house, and then rent that house to a director. As we have discovered above it is perfectly legitimate for a company to buy a house for an employee to live in.

If you the director was to rent it from the company the situation is slightly different than shown above. Any rent paid by the employee is deducted when calculating the benefit in kind. 

If you are paying a market-rate rental, then it is likely that this will be more than the benefit in kind value and therefore no benefit will arise and no tax to pay.

Example

• Buying price: £175,000
• Gross rating value: £1,000
• Employee rent: £1,250
• Interest rate: 4%

The standard reportable value is £0, because the rent is more than the annual rating value.

Additional charge is £3,750:

• £175,000 – £75,000 = £100,000
• £100,000 x 4% = £4,000
• £4,000 – £250 (left over rent from standard value) = £3,750

Total value to report is £3,750:

• Standard value (£0) + additional charge (£3,750)

Handy Hint: It’s possible to buy a second hand car through your business. Here’s how you can do it.

Using company money to pay your mortgage down

If you’re a small business owner who has accumulated an impressive amount of savings in your limited company account, could you put that money to use to pay off your mortgage or at least offset part of it?

Here’s the thought process.

There are a good number of offset mortgages available now for limited company directors.

An offset mortgage monthly repayment is worked out by how much is left on the mortgage minus any amount of money you have saved up in a linked bank account.

So, let’s say your mortgage was £200,000 but you had £60,000 in your linked savings account. At a 1.89% mortgage rate, your monthly payment would reduce by £94.50 to £742.53 by putting £60,000 into savings. 

That’s equivalent to an annual mortgage repayment saving of £1,134.

What if that £60,000 was a loan from your company and not salary? 

Instead of sitting there in your business account earning next to no interest, you could get that money working for you and save yourself £1,134 instead.

It’s a clever idea and it sounds like it could work.

Here’s why HMRC will strongly disagree

First, all loans over £10,000 from a company to a director or an employee are considered as taxable benefits in kind. You’ll have to declare this on your P11d and it’s almost certain that a £60,000 loan will attract HMRC’s attention, moving you up the queue for future investigation.

If you don’t pay the loan off within 9 months of your accounting year-end, your company will have to pay 32.5% of the loan amount to HMRC as a special corporation tax payment (S455). 

You can claim it back, but you will be waiting a long time to receive it.

If you pay the loan off and then take it out again a few days later, HMRC may argue that the second loan is really part of the first loan and look to charge the company S455 tax anyway.

You may also be breaking company law. 

If you normally carry a balance of £70,000 in your business account and take out £60,000 over a long period of time, you are not acting in the interests of the company. 

This is unlikely to come and bite you unless the company goes into liquidation, and you could well be prosecuted under Companies Act for the behaviour.

What if the £60,000 was a dividend and not a loan?

That’s another option and certainly more viable than the loan approach.

The dividend approach brings its own dangers though. Dividends can only be declared on profits retained by the company – that is, the money you’ve made so far and not taken out in dividends or paid/be due to pay in tax.

If you voted yourself a £60,000 dividend but there was not £60,000 worth of profit left in the business, the dividend would be unlawful if not redeclared as a director’s loan. 

And if it is redeclared as a director’s loan, you start to become in danger of falling into the traps mentioned above about the company lending you money to pay into your offset mortgage account.

Nice idea, but don’t do it. 

So, if it doesn’t make sense to use company money to pay your mortgage down, can your limited company buy your house?

Can my limited company buy my house?

Yes, your limited company could buy your house. This would be considered a sale and a purchase transaction. The process is subject to the same additional costs and fees as any other property purchase which include:

• Stamp duty land tax.
• Capital gains tax.
• Legal fees.
• Early redemption charges (if applicable).

These initial costs might put you off, but the longer-term gains might just make this a possible option.

This is where you would need to seek professional advice from your accountant to run scenarios and see what the best option for your personal circumstances would be.

You cannot sell the property to the business at a discounted rate. If you do there will be tax consequences. The property must be sold at open market rate value.

Provided you have enough equity in the property when selling it you could then lend that money to the business as a director’s loan so it can use the cash as the deposit. This may negate the need to raise a deposit from other sources.

FAQs around a company buying a house for a director

Can a house be owned by a company?

Yes, a house can be owned by a company. The purpose of a business owning the house will affect how it should be accounted for in your accounting records and whether in fact, it would make sense to hold the house in its own limited company.

Can I buy a house to live in through my limited company?

Yes, you can live in a house bought through a limited company. The tax treatment of that will vary depending on whether you live in the house rent-free or pay rent to the company.

Rent paid to the company will be treated as taxable income for the company.

If you live rent-free in the house, then you are receiving a benefit in kind from the company. The business will have to submit a P11D to HMRC informing them of the benefit so you can pay the appropriate amount of tax.

The company will also pay employers NI contributions on the deemed value of the benefit in kind.

It is important to run through these calculations and scenarios before entering into an agreement so you can work out which one suits your business and personal circumstances best.

Can I use company profits to buy a property?

As a director of a limited company, you have certain duties to perform, a selection provided here as a reminder:

• To promote the success of the company for the benefit of its members.
• To exercise independent judgement.
• To exercise reasonable care, skill, and diligence.
• To avoid conflicts of interest.
• To declare an interest in a proposed transaction or arrangement.

If the purchase of property from company profits does not hinder you from performing these duties, then you could use company profits to buy property. 

You would need to consider whether this is a wise move depending on the type of business you operate and what benefits the business will derive from holding property.

For example, if you can see a need for cash in the business in the future it does not make sense to tie up large amounts of capital in an asset that is not liquid. 

It could take months and even years potentially to sell a property and get the cash back into the business account. What impact would that have on your company?

Handy Hint: Here’s how a limited company can lend money to a private individual.

Can I set up a limited company to buy property?

Yes, you can set up a limited company to buy a property. If you are setting up a limited company with the sole purpose of buying property this may be referred to as an SPV (Special Purpose Vehicle). 

An SPV is a limited company formed solely for the purpose of purchasing property and managing buy-to-let properties.

Using a limited company isolates the risk during the funding and purchasing of property because the company has its own legal status, assets, and liabilities.

If you are buying property through a limited company with a view to running it as a buy-to-let here are the advantages of buying a house through a limited company and the disadvantages of buying a house through a limited company.

The advantages of buying a house through a limited company are:

• Profits are taxed at the corporation tax rate of 19% (2022) versus income tax rates of up to 45% (for private landlords, profits are taxed via income alongside your other income).
• Retain more profit to reinvest in the business.
• Private landlords can no longer deduct their mortgage expenses from rental income to reduce their tax. Instead, they receive a tax credit based on 20% of their mortgage interest payments (higher or additional rate taxpayers will not get all their tax back on mortgage interest).
• Mortgage interest is treated as a business expense for limited companies before paying corporation tax.
• Potential IHT and CGT benefits (if you plan on passing the portfolio to family members, make them shareholders in the limited company to avoid large amounts of inheritance tax).
• Receive dividends rather than paying income tax.
• No impact on personal credit score if experiencing problems getting rent from tenants.

The disadvantages of buying a house through a limited company are:

• Additional operational costs (legal fees are often higher).
• Accountant costs.
• Mortgages through a limited company normally attract higher interest costs.
• Finding a lender can be tricky as there are fewer products on the market for buy-to-let properties through a limited company.
• Some lenders will want the directors to enter into a personal guarantee.
• If selling your property to a new company this would trigger Capital Gains Tax, stamp duty would also be payable.

Can you buy a house as company expense?

If you purchase a house through your company, it will be an asset of the business, so not be treated as a company expense in the profit and loss account. Instead, it will be accounted for in the balance sheet of the business showing the financial position of the business.

How that asset is depreciated will depend on the split of the purchase price being land, buildings plant and equipment.

Associated costs of running the house can be treated as a company expense:

• Mortgage interest.
• Council tax.
• Water and sewerage charges.
• Heating, lighting and cleaning.
• Repair, maintenance and decoration.
• Furniture for daily use.
• Staff for upkeep of accommodation, for example gardeners and cleaners.

Conclusion

The decision of whether to buy a property through your business for a director is a difficult one. There are several variables to consider such as how to pay for it, what capital allowances can be claimed, what the overall cost will be, whether you should pay rent etc. It really is a most complex area.

If you are buying a property in your business for directors or employees to use, you may also wish to factor in the employee’s individual circumstances as that could also change the decision-making process. 

Seek professional advice where possible. 

It can be easy to make the wrong decision which could cost you time and money.  Buying property is not something you should into lightly as the value can decrease and it can take a long time to turn the property back into cash.

You might also like…

• The ultimate guide to buying a car through your business
• How much you should be paying yourself
• How a small business can buy a house