Many landlords have opted to run their property portfolio through a limited company rather than in their own name. That has big consequences, especially when it comes to taxes. So, let’s look at what you need to know as a property company.
Corporation tax and taxable income
Companies pay corporation tax on all taxable profits. As of the 2024/25 tax year, corporation tax is 19% for companies with profits under £50,000. Those with profits over £250,000 pay 25%. Companies with profits between the two thresholds face 25% too back and can apply for marginal relief.
Taxable income includes rental income, property development profits and financial gains from property sales. It’s important to take note of that last one – if you owned the property in your own name, you would have to pay capital gains tax on the sales profit.
Allowable expenses
Of all tax reliefs available to property companies, allowable expenses are the most important because of how much you can save by claiming them. Allowable expenses are business costs that you can deduct from your taxable income, reducing the overall amount of tax due. Common allowable expenses for property companies include:
- Repairs and maintenance: Routine and maintenance costs are allowable to keep properties in good condition. However, major improvements are not allowable but may qualify for capital allowances.
- Property management costs: Fees paid to property management companies, including advertising for tenants or handling tenant complaints, can be deducted from your pre-tax profit.
- Administrative expenses: You can deduct a range of general administration costs, including postage, stationary, and phone calls.
- Mortgage: Companies can fully deduct their mortgage interest payments from their earnings; otherwise, they could only deduct 20%.
Tax reliefs for property businesses
There are several other reliefs that property businesses can use to reduce their tax burden, including:
- Annual investment allowance: This allows businesses to claim 100% of the cost of qualifying plant and machinery up to £1 million. This can be especially useful for companies that are investing in expensive equipment like computers and vehicles, as well as property improvements.
- Empty property relief: If you get empty property relief, you do not have to pay business rates on your empty property for three months.
- Improvement relief: If you make certain improvements to your property, you can claim improvement relief. The improvements must increase the rateable value of your property. Any improvements to existing features or equipment do not qualify.
Key tax considerations
Property tax is a complex affair, but here are the key considerations to keep in mind:
- Financial management: Make sure to keep all receipts, invoices and bank statements for expenses related to your business. Then, you can back up every allowable expense and capital allowance claim. Accounting software can be especially useful for financial management.
- Property sales: When selling your property, remember that you don’t have to worry about capital gains tax, as corporation tax will be due on any profit you make.
- Incorporating your business: If you own property in your own name and want to transfer it to a company, you may have to pay stamp duty land tax, which will count as a transfer of property.
Talk to us
Running a property business can be fulfilling, but you must stay on top of your taxes to remain compliant and pay only what you really owe.
If you need help with that – or anything else related to your business – get in touch with us. We would be delighted to help.