Traditionally residential property acquired for investment has been held personally. But now investors are considering investment through a company, due to the financial benefits this approach can bring. These include:

Reduced tax on rents

Rents (after expenses) are taxed at 19%. If the property is held personally, tax can be charged up to 45%.

Tax relief

If gearing is involved, full tax relief is obtained for interest paid, whereas individuals will only be able to claim relief at 20% from April 2020, even if they are a higher rate taxpayer.

Recoup initial investment

The company can be funded by lending the initial capital in, which provides the opportunity to draw monies out of the company by repayment of this initial capital.

Here’s an example based on a highest rate tax-payer:

That’s quite a difference!

And there is more!

Using a company structure gives the opportunity to introduce further tax planning. For example:

  • You can have different classes of shares in the company, enabling the senior generation to keep control of the company whilst being able to pay dividends to family members who may have personal allowances available, or lower tax bands.
  • Additionally, the increase in capital value of the company can accrue to the junior generation – to the extent this is wanted – providing inheritance tax savings in the longer term. And if the senior generation at any point no longer needs to draw funds from the company, they could give away their loans – providing further inheritance tax savings if the gift is survived by 7 years.

Is the corporate route right for me?

This route can bring many tax benefits, however if you are planning on receiving all the income from the company to live on, there may be drawbacks. In this scenario, the initial capital put in will all be repaid at some point, and personal tax rates would come into play when income is drawn out. The corporate route may not be ideal for all. Also, there will be additional costs in running a company, but these will not be significant in the light of the tax savings possible.

Some clients are even considering incorporating their existing property portfolios; this is not always possible without incurring significant capital gains tax and stamp duty land tax liabilities, but in some situations it can be done.

Needless to say there are numerous points of detail to consider in setting up a corporate structure. Why not chat to us today to discuss the possibilities.

Contact Simon Linley on 01892 546546 or