Living in a property owned by your limited company is a complex area, as there are several legal and financial factors to consider. Make sure you understand all the potential advantages and disadvantages involved in such arrangements, including the processes involved to comply with regulations.
The short guide below will help you better understand whether you can live in a property owned by a limited company, but here’s the short answer first if you want to cut to the chase.
Yes, you can live in a property owned by your limited company, but you will need to make sure you meet a few conditions to stay on the right side of HMRC as there will be many tax implications which are outlined in the remainder of this guide.
Whilst you can live in a house bought by your limited company, there are many considerations. One example would be if the property in question has been purchased through a buy-to-let mortgage. If this is the case, you must pay rent to your limited company at the market rate.
Another factor is additional taxes. If you purchase a house from a director through a limited company, your company could be liable for additional taxes such as Stamp Duty Land Tax (SDLT) on purchases over £125,000 and capital gains tax (CGT) on the sale of the property to the company.
Navigating the complexities of living in a company-owned property is not simple so we recommend that you always seek the advice from a qualified accountant who can provide guidance – if you need us to connect you with one, contact us.
Before you do that though, it’s important to familiarise yourself with the pros and cons to living in a property owned by your limited company, and the legislation you need to follow.
Living in a house owned by your limited company
As a director or shareholder of a limited company in the UK, you can live in a property owned by your company. However, making this decision depends on your company’s legal structure, ownership, and your operating agreement.
Legal Structure and Ownership
A limited company in the UK can own properties, and its directors or shareholders can live in these properties as long as the operating agreement permits it. However, this arrangement might raise some issues related to taxes, mortgage terms, and the purpose of your limited company.
If your primary residence is owned by your limited company, there are various factors you need to consider:
- Taxes: Living in a property owned by your limited company might subject you to Benefit in Kind (BiK) taxation rules.
- Mortgage Terms: If the property was purchased with a buy-to-let mortgage, make sure you pay rent at the market rate and follow the mortgage terms your company agreed upon.
- Limited company purpose: If your primary residence isn’t connected to the core business activities of your limited company, owning it within the company may not serve any practical purposes, and it may be more appropriate to own it personally.
The pros and cons of a limited company owning property
Tax benefits and implications
One of the main advantages of having a property owned by your limited company is the tax benefits. Your rental income will be subject to corporation tax, rather than income tax, which is currently at a rate of 19% for the 2021-22 tax year. This rate is often lower than income tax rates for higher earners, resulting in potential tax savings. Please bear in mind that when extracting the profit after corporation tax you will need to factor in the amount of personal tax you will pay to get the overall picture of whether this is right for you.
However, there are some drawbacks when it comes to capital gains tax (CGT). If your limited company sells the property, it will be subject to corporation tax on any capital gains. Although this rate is still lower than the higher CGT rate for individuals, companies do not benefit from an annual tax-free allowance like individuals do.
Additionally, any gains from the sale of the property cannot be sheltered using Individual Savings Account (ISA) allowances within a limited company. Furthermore, you should consider the potential implications of inheritance tax when passing on the property to family members or beneficiaries.
Mortgage and financing options
Getting a mortgage as a limited company buying property could be more challenging versus doing so as an individual. This is because some lenders might not offer financing to limited companies.
However, there are lenders who specialise in mortgages for limited company properties, but bear in mind that your personal involvement in the mortgage application may still be required, such as providing a personal guarantee. It is worth noting that if your limited company borrows money to purchase the property, the mortgage interest is deductible as an expense, which could help reduce your overall tax liability.
Risk management and liability
When you own a property through a limited company, you are limiting your personal liabilities. Your financial liability is generally limited to what the company owns, rather than your personal assets. This provides a layer of protection for your other investments and personal finances.
However, it’s important to note that company liabilities, such as debts, need to be managed carefully. If your limited company falls into financial difficulties, properties owned by the company may be at risk. Ensuring the proper management of your limited company and its finances is essential in mitigating these risks.
In conclusion, owning a property through a limited company has both advantages and drawbacks. The tax benefits can be significant, but there are implications for capital gains tax and inheritance tax to consider.
Mortgage and financing options may be limited, but can still provide competitive rates.
Finally, limiting your personal liability offers some protection for your personal finances, but it’s essential to manage your limited company effectively to mitigate any risks and maintain stability.
Conclusion
To conclude, yes, it is possible for you to live in a property owned by your limited company in the UK. However, to avoid any complications or unforeseen issues, it is vital to seek advice from a qualified accountant before deciding to do so.
Keep in mind that if your property is owned through a buy-to-let mortgage, you must ensure that you are paying rent at the market rate.
When purchasing a property through a limited company, you’ll be subject to corporation tax at 19% rather than paying income tax at 40-45%. This could be a significant advantage if you’re a higher or additional rate taxpayer. Please bear in mind that when extracting the profit after corporation tax you will need to factor in the amount of personal tax you will pay to get the overall picture of whether this is right for you.
Additionally, multiple directors of the company can guarantee the mortgage, potentially making the process more accessible and manageable.
Jon has been in business since 1999, and in that time worked with more than 300 small business clients. As well as being an accountant, he is also an early adopter of tech, and has helped small businesses to leverage the power of their computer systems by creating software to automate and simplify accounting tasks.
