Following on from yesterday’s post, and my conversations with friends about starting out in Property – should you use a company for your property investments? It depends on your individual situation, but I’d say that given everything that’s going on with the Government’s approach to private property investors, and weighing up the various pros and cons, that it’s virtually a given for most that using a company right from the get-go is a must, and here are some reasons why*;

First, tax efficiency is a significant advantage. When you hold properties personally, rental income is taxed as personal income, which can be as high as 40% or even 45% for top earners. In contrast, using a Limited Company means rental income is subject to Corporation Tax, currently at 19% for profits below £50,000 and 25% above. This can result in substantial tax savings, allowing you to reinvest more profits into expanding your portfolio.

Additionally, mortgage interest relief has been restricted for individual landlords. Previously, you could deduct mortgage interest from your rental income before calculating tax. Now, you can’t. Limited Companies, however, can still fully deduct mortgage interest, making this structure far more attractive from a tax perspective.

Another benefit is the flexibility in how profits are taken. As a company owner, you can pay yourself through dividends, which are taxed at a lower rate than income. This can be particularly advantageous for higher-rate taxpayers. Moreover, if you don’t need to withdraw profits immediately, you can leave them in the company, deferring personal tax liability. Starting out, you’ll simply make deposits to the company’s bank account from your personal bank account – and since you’ve already earned this income and paid tax on it, you’ll be able to take it back out in future fairly straightforwardly (i.e. it’s like you are “loaning” the company your money).

Using a Limited Company also offers liability protection. Your personal assets are separated from your business liabilities, meaning that if your property investment runs into trouble, your personal finances are shielded.

On the downside, there are higher administrative costs and complexities associated with running a company. You’ll need to comply with annual filing requirements, corporation tax returns, and possibly VAT registration (not something you’re likely to have to worry about in the first little while – until your profits reach a certain level). Professional advice and accounting services are essential, which can add to your expenses.

Despite these costs, for many investors, the tax benefits, liability protection, and financial flexibility make using a Limited Company a compelling option. Given the current regulatory environment, starting with a company can provide a more resilient and advantageous structure for building your property portfolio. Always seek personalised advice to ensure this approach aligns with your financial goals and circumstances.

*M2P are not financial advisors. Always seek professional advice.

Married2Property are a family-run property company that aims to create social good through property.

These articles are written by Darren de Wal based on his many years of experience as an active Property Investor since his first investment property in 2012 and 16 years getting to a senior leadership position as an Officer in the Royal Air Force. They are for the benefit of those with a general interest in Property, as well as those wishing to start out investing themselves.