Can My Company Buy a House and Rent It To Me as a Director to live in?

Can a Limited Company Buy a Residential Property and rent it to me? When directors want to live in a company house

Are you wondering, “Can my Limited Company buy a house and rent it back to me as a director?”

This article explores the legal and tax implications for you and me.

It is important to understand the tax position for you and your company when a business buys a house for a Director who pays rent for a house owned by the company.

Most landlords will buy a residential property with a buy to let mortgage as an investment. However, a company can rent the property back to the director or an employee of a limited company.

The employee/director living in the property will likely pay some money to the company, but how much needs to be paid?

Setting up a limited company to purchase residential property investments has many pros and cons.

What are the basics of a Limited Company buying a house?

As a property accountant with an expert team serving thousands of UK landlords that purchase buy-to-let properties, I know whether a Limited Company can buy a house is tricky.

Many of my clients ask if a company can buy a house for a Director.

It is vital to understand the tax liabilities involved.

If a business can buy a house, it may not be the best decision for you and your property company in the long term.

Whether or not to buy a house through your Limited Company needs careful consideration.

It can be done, but I advise you to research thoroughly whether it is a tax-efficient strategy.

You could incur a Benefit In Kind tax penalty unless you paid commercial rent to your company.

Any gain on selling the property would be subject to corporation tax.

Basic-rate taxpayers should avoid buying through a Limited Company, while higher-rate taxpayers who are not looking to take salary or dividends from the company can reduce their tax liability from 40% personal tax to 19% corporation tax.

The bigger picture is not whether a business can buy a house but whether it is financially prudent from a tax perspective for a company to buy a house for a Director.

When a UK company buys a house and rents it to an employee, it can be beneficial but comes with specific tax implications. For the employee, if the rent charged by the company is below the fair market value, the difference may be considered a taxable benefit by HM Revenue and Customs (HMRC). The employee could face additional income tax liability on the deemed benefit. On the other hand, if the rent is at or above the market rate, the tax implications for the employee are generally straightforward, as they would simply be paying rent without additional tax consequences.

For example, consider a UK company that buys a house and rents it to an employee at a significantly reduced rate. If the fair market rent is £2,000 per month but the company charges only £1,000, the £1,000 difference may be deemed a taxable benefit. Employees must report this £1,000 per month (£12,000 annually) as additional income, potentially increasing their overall tax liability. The company, however, can deduct costs related to the property, such as mortgage interest, property taxes, and maintenance expenses, which can offset the rental income received.

In another scenario, if the company rents the property to the employee at the full market rate of £2,000 per month, the employee would not incur any additional taxable benefit, as they are paying the market value. However, the rental income received by the company would still be subject to corporation tax.

Additionally, the company can claim tax relief on allowable expenses related to the property, such as mortgage interest and maintenance costs, thus reducing the overall tax burden on the rental income. It is crucial for both the employee and the company to consult with tax professionals to navigate these implications effectively and ensure compliance with UK tax regulations.

How to pay less tax as a Limited Company

My property tax team are constantly looking at ways for clients to pay less tax.

This includes if a property business structure is held within a Limited Company.

It is possible to pay less tax as a Limited Company by utilising strategies designed to lower your corporation tax bill.

These strategies include:

Making an employer pension contribution

Adding money to a pension can help to make sure you keep your financial independence when you decide to stop working.

But if you have your own Limited Company, it could also help you to save on tax.

If you’re employed by the Limited Company, you can make employer contributions to your pension from your company account.

Employer contributions are normally treated as a business expense, so you won’t pay corporation tax on the contribution.

If the pension contribution is made instead of paying yourself that amount of salary, then both you and your company will save on National Insurance as well.

As an individual, you would not pay any income tax until you access money from your pension.

You usually need to be at least 55 (rising to 57 from 2028) before you can access money in a pension.

Make sure that you understand your pension contribution limits first.

Most people in the UK have an annual allowance of £60,000 for the 2023-24 tax year but you might be able to carry forward any allowance you haven’t used from the previous three tax years.

The annual allowance for the previous three tax years was £40,000.

Pension and tax rules can change, and any benefits will depend on your circumstances.

HMRC could question any corporation tax relief if your total salary and benefits package is more than the work they believe you have done for the company.

This is why it is imperative to get the best possible advice from property tax experts if you are thinking of buying a house for a Director using a Limited Company.

Claim for every business expense

Claiming everything you can when running a Limited Company is vital.

By making a claim, you reduce your profits, which also reduces how much corporation tax you pay.

You can claim for anything from office equipment and advertising costs to travel expenses and training courses.

Ensure that the expenses you claim are only for business-related purposes.

Keep a record of your expenses. Without a record, HMRC can refuse to accept your claim.

Make a charity donation.

Limited companies can pay less corporation tax if they gift money to a charity or community amateur sports club.

The value of any charity donations is deducted from any total business profits before tax is paid.

Each case is different and depends on the long-term goals of the individual or Limited Company.

What you should do next

Having read this guide, it may be tempting to do nothing.

But, you could end up paying more tax than you need as a Director and not getting the most tax-efficient use of your Limited Company.

My team of property tax experts are on hand to help you save tax and pay HMRC the lowest amount of tax possible.

It is vital to understand if a Limited Company can buy a house and whether a company can buy a house for a director to save on tax.

I advise you to read this to get more details information and the best property tax advice on buying property through a Limited Company.

I suggest that you book in time here today to ensure that you do not pay more tax on your property investments than you need to.