4 Disadvantages of Buying Property Through a Company
In recent years, many investors have looked at buying property through limited companies rather than in their own name. While this route can offer tax efficiencies in some situations, it’s not always the best option. Here are four key disadvantages you should be aware of before making the move.
Higher Mortgage Rates and Fewer Lenders
When you buy a property through a company, your mortgage options become more limited. Not all lenders offer products to limited companies, and those that do often charge higher interest rates and arrangement fees. This can significantly reduce your rental yield compared to buying personally.
Extra Costs of Running a Company
Owning property through a company means you’ll need to maintain proper accounts, file annual returns, and possibly hire an accountant. These ongoing administrative and compliance costs can add up quickly, especially if you only own one or two properties.
Double Taxation Risk
Although companies pay corporation tax on rental profits (which may be lower than personal income tax rates), extracting the money for personal use isn’t always straightforward. If you want to take income out of the company, you may face additional tax on dividends or salaries — creating a “double taxation” effect that can eat into profits.
Capital Gains Tax Challenges
If the property grows in value and you later decide to sell, companies don’t benefit from Capital Gains Tax allowancesthat individuals do. Plus, moving properties in or out of the company structure can trigger stamp duty and tax liabilities, making your exit strategy more complicated and potentially costly.