If you’re thinking about investing in property and wondered whether a Property Investment Company may be the way forward, read on.
To be clear on terminology, whether you call something an SPV, Property Investment Company or anything else it is still a limited company with shareholders. So what are the factors you need to consider when deciding whether or not to go down the route of ownership through a Property Investment Company? Here are the areas that I would normally discuss with you:-
Are you a higher rate or lower rate taxpayer?
Generally speaking, higher rate taxpayers could be better off in terms of net cash retained by holding rental property in a property investment company. The only sure way to see what the tax savings could be is to get a comparison. Get in touch. This is part of the service we offer.
Mortgage finance costs
At the moment mortgages for limited companies are still more expensive than mortgages for personal ownership, but things are changing. With more and more landlords using limited companies, interest rates are getting more competitive and the number of lenders increasing rapidly. Nonetheless, you should obtain quotes from experienced Buy to Let mortgage brokers and due your due diligence.
SDLT is payable at the standard rate and a limited company will always pay the higher rate of 3% in addition. There is no way around this unless you are purchasing the shares of another company which owns the property. This is an area of much contention with many advisers claiming that SDLT can be avoided. We disagree. Case law is slowly deciding that no exemption for SDLT is allowable together with stricter guidance from HMRC. For a full discussion we would be happy to hear from if you are affected by this.
Capital Gains Tax
A Property investment Company does not receive a capital gains tax allowance when selling a property. An individual selling a property would only have to pay capital gains tax on the overall gains above their tax-free allowance of £12,300 as of 2022-23. A company will be liable to pay tax on all gains. However, this can be offset by the increased tax efficiency available throughout the rental lifetime of the property, and, for higher rate taxpayers, the tax rate paid through a company could be lower. The tax implications are not always straightforward, and everyone’s personal tax liability will be different. It’s well worth getting independent tax advice from a property tax specialist before making any decisions.
Paying Dividends and taking money out of the company
As a higher rate taxpayer drawing dividends in excess of the current £2000 dividend allowance could result in higher taxation. Thus, if you are seeking to rely on the rental profits to supplement your living costs you could end up paying more in overall tax than if you owned the rental property in your personal name. When setting up your Property Investment Company through us we can show you how to extract profits in a tax free or with very little payment of tax.
Property held in a property Investment Company provides more options to plan for inheritance tax. Landlords seek long term capital growth and to supplement their current and retirement income with a view to protecting their property wealth and to pass on the assets to children whilst avoiding high rates of personal tax on the income. By setting up the Property Investment Company as a Family Investment Company structure tailored to your individual circumstances effective inheritance tax planning can be achieved. Ownership and inheritance tax planning in a personal name is much more difficult to achieve. Once again each case is different and it is crucial that you get the right tax advice or it could end up costing you £000’s.
To summarize, for anyone looking to hold the property for the long term, with a view to protecting their property wealth for the next generation and to avoid high rates of income tax, a Property Investment Company is the answer. For more details and to discuss your personal circumstances please get in touch. We normally offer a free 30 minute consultation to discuss your case fully with no obligation.