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Contractors buying investment property through their limited company

Thinking of buying investment property through your limited company?

This might not be the best option for you. There are a few issues to take into consideration, some of which are:

  • Your company does not get any CGT free allowance from selling assets;
  • Your company might lose its trading status, in which case you won’t be able to claim entrepreneur’s relief;
  • What happens with the property if you want to close your company?
  • You might need to keep the company open much longer than you want to if you can’t or don’t want to sell the property.

A better option would be to either:

  • Incorporate another company with the sole purpose of buying investment property. You might find getting a mortgage through the company difficult though, depending on the deposit. We therefore would advise to do thorough research before going down this route.
  • Make contributions to a pension fund from your contracting limited company. These contributions are deductible for Corporation Tax. You also won’t pay any personal tax on pension contributions, since it’s not income (it’s neither dividends nor salary). It is possible to buy a property in a pension fund, but you’d need to speak to an IFA to find out more about that.
  • Declare the dividends, pay the tax due on dividends over the higher earnings threshold and buy the property in your personal name.

Your contractor limited company shouldn’t lose its trading status if its investment activities are not substantial compared to the company’s other trading activities.

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