Should I invest my limited company cash into a property?

I work as freelancer trading through my own limited company and I am sitting on a fair bit of cash in my business at the moment and I was thinking about trying to invest it.

One of the options I was looking at was potentially purchasing a holiday property which I could then rent out.

My question is – is it possible for me to purchase such a property via my business or would it need to come from my personal cash?


Investing Company Cash in Property


Answer, September 2018

Although everyone’s circumstances are different, generally, we wouldn’t recommend that you purchase an investment property through your trading company for several different reasons as outlined below:

Trading company vs investment company

Holding significant investments in a trading company could cause HMRC to reclassify your company from a trading company to an investment company – investment companies have less generous rules with regards to what expenses can be put through.

Also investment companies will not be entitled to entrepreneurs relief if you choose to close your company down in a tax efficient manner in the future – see our article here.

Assets at risk

One of the benefits of running a limited company is the fact that there is limited liability on you personally, subject to the company being run correctly.

However if you have significant assets in a company, such as property, then these could be at risk should your company run into financial or legal difficulties – for example if your company was sued for negligence.

Stamp duty

The stamp duty rates for companies can be higher than for individuals, see the HMRC link below:

Double taxation

Although investing in a property through a limited company might sound advantageous as a way to work around the relatively new mortgage interest relief restriction rules, one of the main problems with this strategy is that you end up with double taxation at some point – you will pay corporation tax on the profits made when renting out the property and also on any capital gain that is made when the property is sold further down the line – and then you have to pay personal tax when you extract cash out of the company.

When it comes to capital gains tax, as an individual you have an annual capital gains tax free allowance, but companies don’t have these.

Benefit in kind tax

If you are planning to use a company owned property for any personal use then you will be taxed on this as a benefit in kind and have to report it on an annual p11d return.

If you own the property personally this would not apply.

Should you purchase the property personally?

The other typical options for a property investment are therefore either to purchase it personally or to purchase it through a second limited company.

If you choose to purchase the property through a second limited company then you could choose to lend some money from your trading company to your investment company – although there are various hurdles and pitfalls with this so we’d recommend you discuss this with an accountant.

Having another limited company will mean additional administrative costs for the annual accounts and tax returns and is also likely to mean higher legal fees due to the additional complexities of the property being purchased in this way.

Our general advice tends to be that if you are looking at only one or two investment properties, it is usually a lot simpler to purchase them personally – however property companies can be useful if you are building a portfolio of many properties which is why a lot of professional landlords and developers run their businesses through companies.

Other uses for retained profits

With regards to the retained profits in your business – you might want to consider employer pension contributions as these tend to be a very tax efficient way to invest surplus profits once you have maximised your salary / dividend extractions – however it does tie up the cash until later in life.

Also it is worth pointing out that having a decent amount of retained profits in your business can be a very good thing when it comes to financial security as it can allow your company to carry on paying you during periods of lower earnings.