Purchasing a Property with your Ltd company

Are you thinking of purchasing property through your limited company? Below we will go through real life scenarios including cost and taxation implications of purchasing a property as a limited company but also the advantages and how this can benefit your business.

Firstly, can I Purchase a Property through my limited company?

Yes. A limited company is a separate legal entity and as such is entitled to purchase property subject to Directors and Shareholders approval.

Below are the scenarios and taxation pitfalls in relation to purchasing a property

• Tax on Income generated from Rental income is 25%, this will rise to 40% should the profit  remain in company for more than 18 months. If you extract the profit you will be liable to up to 52% tax on the income

Example

Property Purchased for €400,000

Annual Net Rental Income €40,000

Corporation tax €10,000

Personal tax = (€30000 * 52% = €15,600

OR

Corporation tax surcharge (€30,000 * 15% = €4,500

• The cost of the property cannot be written off against Profits. Income generated to build up funds in the company will be subject to 12.5% Corporation tax (in some cases a surcharge of approx. 7% will apply), therefore you have already paid tax on the amount that you have in the company

Example

Property Purchased for €400,000

Income of €457,150 must be generated in company to give you €400,000 and you would have paid €57,150 in Corporation tax

• Should you wish to live in the property a Benefit in Kind equal to the value of  what the annual rent would be

Example

Purchase Price €400,000

Annual Market Rent €30,000

BIK Taxes due €30,000*52% = €15,600 (assuming higher marginal rate of tax)

• Captial Gains tax Should you sell your property any profit you make from the sale will be subject to Captial gains tax within the company, on liquidation of company their may be a further charge to capital gains on the same money if it is still within the company. This would also apply if you were transferring the property from the company to yourself
• Borrowings: In general a bank will tend not to give mortgages out to limited companies unless there is  a proven track record and a build up of assets within the company

Advantages of Purchasing Property through limited company

• It is easier to build up a fund within the company than it is personally, as Corporation tax is lower than Income tax.
• The tax rate on Income relating to Income generate is lower

Company 25% (40%) v’s Personal 52%

• When you go to sell property it may be possible to sell the shares in the company rather than the property in order to reduce Capital gains tax and stamp duty.

Summary

We would advise that you weigh up your options carefully before deciding to purchase a property through your limited company, the short term access to company cash needs to be balanced with the long term tax implications. 

Should you wish to arrange a meeting with one of our advisors please contact us by email on info@iconaccounting.ie or call the Icon Accounting Advisory Team on 01 8077106