Small business and tax blog

As investing in buy-to-let rental properties has become more popular, we are often asked whether it is better for tax purposes to own such properties personally or through a limited company.

Unfortunately there is no simple answer to this question, as it depends on the following main factors:

• Whether you expect to use the property privately at any time.
• How much taxable income you expect to earn from the property each year.
• Your level of other taxable income from now until the time you expect to sell the property.
• Unexpected changes to the tax system (such as the change to capital gains tax this year).
• Whether you have previously incurred any allowable tax losses in your property business.
• Whether money needs to be borrowed to buy the property.
• Whether you are looking to own the property solely, jointly, or in some other proportion.
• How much of a taxable capital gain you expect to make when you eventually sell the property.
• Whether you already own any other investment properties personally or through a company.
• Whether the property is in the UK or overseas.

Prior to the tax changes in April 2008, the decision was often finely balanced. In April 2008, the personal capital gains tax liability was reduced for most buy-to-let properties, and the tax rate for small companies increased above the basic rate of income tax. As a result of this, we expect most buy-to-let property investors to be better off tax-wise by owning their properties personally.

An exception might be a higher-rate taxpayer, who made a good rental profit from the properties each year, and who was able and willing to let those profits build up in the company for some years before drawing them out.

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