Putting rental property into a limited company is something a lot of Kiwi investors mull over when they want to make their rental game smarter. If you’re here, you’re probably wondering what’s the deal with buying rental property through a limited company, how it stacks up against owning it yourself, and whether it actually saves you any cash or just creates more hassle.
This article’s gonna cut through the jargon and give you the lowdown on limited company property ownership — what it really means, the perks, the pitfalls, and how to get your head around transferring rental property to a limited company if that’s the path you choose. We’ll unpack the tax benefits of limited company rental property too, so you can see if it’s worth the shift.
By the end of this, you’ll have a clear idea if putting rental property into a limited company suits your situation and what steps to take next. No fluff, just straight-up info to help you make a smart call on your property investment. Let’s dive in.
What does putting rental property into a limited company mean?
Putting rental property into a limited company means owning and managing your investment property through a separate legal entity—a company—instead of holding it in your own name. This section explains what a limited company is, how it relates to property ownership, and why some investors prefer this structure.
How does a limited company own property?
A limited company is its own legal person, separate from its shareholders. When a property is owned by a limited company, the company’s name is on the title deed, and the company holds all rights and responsibilities related to the property. This means rental income, expenses, and liabilities belong to the company, not directly to the individual investors.
Common scenarios for using a limited company
Investors often choose a limited company structure when they want to separate personal assets from business risks, plan for tax efficiency, or prepare for growth and multiple property investments. Common reasons include:
- Minimising personal liability in case of legal issues
- Taking advantage of corporate tax rates
- Structuring ownership for easier transfer between shareholders or family members
For more on rental property tax deductions and claims, check what can you claim on a rental property?.
Advantages of buying rental property through a limited company
Owning rental property via a limited company can offer several advantages. This section highlights the financial, legal, and tax benefits investors might gain when using this structure.
Introduction
Limited companies often come with perks that can help investors save on taxes and protect their personal assets. Here are the main advantages to consider.
Advantages list
- Tax efficiency: Rental income is taxed at the company tax rate, which may be lower than individual income tax rates.
- Asset protection: Personal assets are generally shielded from company liabilities.
- Simplified succession: Shares in the company can be transferred more easily than direct property ownership.
- Expense deductions: Companies can deduct a wider range of expenses related to the property.
- Growth potential: Easier to raise capital and add investors via shares.
According to IRD guidelines, companies are taxed at a flat rate, currently 28%, which can be beneficial compared to higher personal rates.
To explore benefits further, visit benefits of investing in residential property.
Disadvantages and challenges of rental property ownership in a limited company
While there are clear advantages, owning rental property through a limited company also has its downsides. This section covers the main challenges and costs investors should weigh.
Introduction
It’s not all smooth sailing. There are extra costs, administrative duties, and potential tax drawbacks when using a limited company for rental property.
Disadvantages list
- Increased compliance: Annual financial statements, tax returns, and company filings add complexity.
- Dividend taxation: When you withdraw profits as dividends, they are taxed again personally.
- Financing hurdles: Banks often apply stricter lending criteria and higher interest rates for company-owned properties.
- Setup and ongoing costs: Legal fees, accounting, and company maintenance can add up.
Many investors underestimate the ongoing costs and obligations of running a company, which can reduce net returns.
For more on managing rental property risks, see ring fencing NZ.
How to transfer rental property to a limited company?
Transferring an existing rental property into a limited company involves several legal and tax steps. This section explains the process and what to expect.
Introduction
If you already own a rental property personally and want to move it into a limited company, you need to follow a formal transfer process. This can have tax and legal implications.
Transfer process explained
The transfer typically involves:
- Valuing the property at market price
- Executing a sale or transfer agreement between you and the company
- Registering the change of ownership with the land registry
- Updating insurance and tenancy agreements
Because the company is a separate entity, this is considered a sale, not just a paper transfer.
Tax implications of the transfer
Transferring property to a limited company can trigger:
- Capital gains tax (if the property has increased in value since purchase)
- Bright-line test obligations under New Zealand tax law
- Possible GST implications, depending on the property type and transaction
- Legal fees and transfer costs
It’s essential to get professional advice before proceeding to understand how this affects your tax position and cash flow.
For professional support, consider accounting services NZ.
Bonus for putting rental property into a limited company
This section shares practical tips and strategies to get the most out of owning rental property through a limited company.
Introduction
If you decide to go down the limited company route, here are some bonus tips to help you maximise benefits and avoid common pitfalls.
Summary table
| Aspect | Advantages | Disadvantages | Key Tips |
|---|---|---|---|
| Taxation | Lower corporate tax rate | Dividend tax on profit | Plan your income extraction |
| Asset protection | Separates personal and business | Compliance costs | Keep accurate records |
| Financing | Can attract investors | Stricter lending requirements | Build good credit and relationships |
Additional tips
- Work closely with a qualified accountant to navigate tax rules.
- Keep clear financial separation between personal and company funds.
- Review your structure regularly as laws and personal circumstances change.
Conclusion
Putting rental property into a limited company isn’t a one-size-fits-all solution, but it can be a smart move for many Kiwi investors looking to protect their assets, save on tax, and grow their property portfolio more efficiently. It’s important to weigh up the benefits like lower corporate tax rates and easier succession planning against the extra costs and administrative work involved.
Before making the switch, get solid advice from an accountant or property professional who knows the ins and outs of New Zealand property law and tax. That way, you’ll make sure the structure works for your unique situation and avoid any nasty surprises.
If you want to explore more about managing rental properties and what you can claim, have a look at what can you claim on a rental property?.
Ready to make the best choice for your property investment? Understanding your options and planning carefully will set you up for success.
FAQ about putting rental property into a limited company
Is it always better to buy rental property through a limited company?
No. It depends on your tax situation, investment goals, and how you plan to manage the property.
Can I transfer an existing property into a limited company?
Yes, but transferring can trigger taxes and fees, so professional advice is recommended.
What are the tax rates for rental income in a limited company?
Companies generally pay a flat corporate tax rate of 28%, which may be lower than personal rates for high earners.
Do limited companies offer advantages for inheritance planning?
Yes, owning property in a company can simplify passing assets to beneficiaries.
What are the main costs of running a limited company?
Costs include annual accounting, company filing fees, and compliance with legal obligations.