If you, as a director/shareholder of a limited company, live in a residential property owned by your company, there are significant tax consequences for both you personally and for the company.
Although you can live in it, it’s not tax-efficient, and there are complex tax implications. HMRC treats this as a Benefit in Kind (BIK) to the director.
For the Director (You, Individually):
Benefit in Kind (BIK): HMRC considers your use of the property as a “benefit”, and you’ll be taxed on it as if it’s part of your salary.
The value of this benefit is based on:
- The annual value of the property (commonly market rent), or
- A specific HMRC calculation for “living accommodation”.
This BIK is added to your income and taxed via PAYE or self-assessment.
For the Company, the company pays Class 1A National Insurance Contributions (NICs) on the BIK at 13.8%, it cannot claim mortgage interest or property running costs as a business expense unless rent is charged at market rate and it must complete P11D forms and report to HMRC.
EXAMPLE SCENARIO
- Property Value: £400,000 , Market Rent: £24,000/year (£2,000/month), Director Lives in Property Rent-Free, Company Owns Property
HMRC calculates BIK for living accommodation like this:
If the property costs more than £75,000, BIK = Annual Value (e.g. market rent) + Additional Charge (based on cost of property)
1. Annual Value (Market Rent) = £24,000
2. Additional Charge (only if property > £75,000):
- Formula: (Cost – £75,000) × Official Interest Rate
- Assume cost = £400,000
- Excess over £75,000 = £325,000
- Official interest rate (2025/26 assumed) = 2.25% (subject to change annually)
- Additional charge = £325,000 × 2.25% = £7,312.50
Total benefit in kind = £24,000 + £7,312.50 = £31,312.50
Tax payable by director assuming you’re a higher-rate taxpayer (40% bracket) would be BIK tax of £31,312.50 × 40% = £12,525/year, if you are a basic rate taxpayer, its £6,262.50/year
The company would pay BIK tax 13.8% × £31,312.50 = £4,322.13/year
Company also cannot deduct BIK-related property costs and this would need to be reported on a P11D for you
Pros and Cons of Director Living in Company-Owned Property
ADVANTAGES
| Advantage | Explanation |
|---|---|
| Asset Protection | Property is under company, not personal name |
| Capital Preservation | Can use company funds instead of post-tax personal funds |
| Possible use of company’s surplus cash | Rather than extracting cash (and paying income tax) to buy personally |
DISADVANTAGES
| Disadvantage | Explanation |
|---|---|
| BIK Taxation | Director pays tax as if it’s additional income |
| Company Pays NICs | 13.8% Class 1A NIC on the BIK value |
| No Mortgage Interest Relief | Interest isn’t deductible unless let commercially |
| No CGT Allowance on Sale | On eventual sale, company pays corporation tax on gain, then you pay dividend tax to extract funds |
| No Private Residence Relief | Unlike owning personally, no PRR available for CGT if sold with gain |
| Complex admin | Requires P11D filing, payroll entries, company accounting for benefit and NICs |
ALTERNATIVE OPTIONS
Option A: Charge Market Rent, You (director) pay £2,000/month to the company, no BIK arises as you’re not receiving a benefit, the company then pays corporation tax on the rental profit, thus avoiding personal BIK tax — but pay from post-tax income.
Option B: Buy personally instead, using salary/dividends to buy it, therefore can claim Private Residence Relief on CGT, avoiding BIK, NICs, and admin complications, but you’ll pay income/dividend tax to extract funds from the company to fund the purchase.
If you would like any further help please get in touch
This information is correct as of 31.10.25