If you’re considering expanding your property portfolio in Scotland, purchasing through a limited company might be a strategic move. Here’s an updated look at the advantages and challenges of this approach for 2025.
Pros of Buying Through a Limited Company
- Full Mortgage Interest Deduction
Unlike individual landlords, limited companies can fully deduct mortgage interest from rental income before calculating tax. This is a significant advantage, especially after the reduction in tax relief for individuals.
- Lower Corporation Tax Rates
Corporation tax rates are generally lower than personal income tax rates. For the 2025/26 tax year:
- Profits up to £50,000: 19%
- Profits over £250,000: 25%
This structure can be more tax-efficient for higher-rate taxpayers.
- Simplified Inheritance Planning
Transferring ownership of a limited company can be more straightforward than transferring individual properties. This can potentially reduce inheritance tax liabilities and simplify estate planning.
- Potential for Tax-Free Dividends
Shareholders can receive up to £2,000 in tax-free dividends annually, depending on their income.
Cons of Buying Through a Limited Company
- Additional Costs and Administration
Operating a limited company involves extra administrative tasks, including:
- Preparing and filing annual accounts
- Paying corporation tax
- Filing with Companies House
These responsibilities can lead to higher accounting and legal fees.
- Higher Mortgage Rates and Limited Lender Options
Limited company buy-to-let mortgages often come with higher interest rates and fewer lender options compared to personal buy-to-let mortgages.
- No Capital Gains Tax Allowance
When selling a property, individuals benefit from a capital gains tax (CGT) allowance (£3,000 for the 2024/25 tax year). Limited companies do not receive this allowance, potentially leading to higher CGT liabilities.
- Stamp Duty Land Tax (SDLT) Considerations
In Scotland, the equivalent of SDLT is the Land and Buildings Transaction Tax (LBTT). While the rates are similar, the additional costs of setting up a limited company can make this route less cost-effective for some investors.
Is It Right for You?
Opting for a limited company structure can be beneficial, particularly for higher-rate taxpayers or those planning to expand their property portfolio. However, it’s essential to weigh the benefits against the additional costs and administrative responsibilities.
If you’re considering this route, it’s advisable to consult with a financial advisor or tax professional to assess your specific situation and determine the best approach for your investment goals.
Your Home (Or Property) May Be Repossessed If You Do Not Keep Up Repayments On Your Mortgage. Some Forms Of Buy To Let Mortgages Are Not Regulated By The Financial Conduct Authority. A Fee May Be Charged For Mortgage Advice.
