Are you a property investor who is unsure whether to invest as a sole trader or through a limited company? Well, you Won’t have to ponder any longer, we have come up with some pointers for you to factor in!
Tax benefits
The ultimatum is the tax benefits that can be obtained from either choosing to invest in a limited company or as a sole trader. It is essential to factor the tax benefits, for huge savings can be achieved and this money can be reinvested. Afterall, every penny saved is a penny earned.
- A limited company is also known as Special-purpose Vehicle Company (SPV), a company limited to only purchasing and owning of properties. When investing in a limited company, there is obligation to pay ‘Corporation Tax’, where only the profits are taxed and not the income. The owner can pay himself in the form of salaries or dividends, or both.
- The other hand, sole traders are obligated to pay income tax on the entire rental income, irrespective of the amount set aside as personal income. The income tax percentage charged is also different for both, here is a breakdown of the 2023 Tax rates:
| Ltd. Company | Sole Trader |
| Up to £12,570 = 0% Tax | |
| Profits of £50,000 and less = 19% (small profits tax) | From £12,571 to £50,270 = 20% (Basic rate) |
| Profits from £50,000 to £250,000 = The main rate will taper | From £50,270 to £150,000 = 40% (Higher rate) |
| Profits of £250,000 and more = 25% (Main rate) | Over £150,000 = 45% (Additional rate) |
| Stamp Duty can be reduced to 5% by setting up a new company for every property. | There is personal allowance on taxable income over £125,140. |
Liabilities
Apart from tax benefits, it also boils down to liabilities. In case of a limited company, the owner will not be personally liable in case of any loss, but as a sole trader the liabilities must be solely born by the investor.
Legal responsibilities
It is also easy to build a property portfolio by acting through a limited company, that is if you are aiming to have a long-standing career as a property investor. But with it comes the added responsibilities, more paperwork and documentation. As a limited company, it is essential to comply with Companies Act, file income tax reports and diligently perform admin work. Being a sole trader means there is less paperwork to file and even less admin work to be done.
These choices need to be tailored as it might differ depending on the property investors’ goals, portfolio, and finance. Reach out to E.R.E. Property today and consult our team of professionals for any property investment advice!
