SarahBeenySpringIssue2017 - 64
'If you are a landlord, or thinking of
becoming one, you should consider
setting up a company. It could limit
your tax bill in the future.'
ANDREW DAVIS FCCA, DipPFS, FFA, FIPA
here have been a lot of changes recently
that affect individuals who have invested
in rental property, or are considering
doing so. These changes mean that
ownership through a company is now well worth
considering. Whether you do this or not depends
on your individual circumstances and how you
perceive the investment in the future.
The investment itself is just one part of a
chain of activity that includes taxation and the
optimisation of tax payable. Many investors see
buying a property simply in terms of growth of the
asset value, but if they borrowed funds to buy the
property then changes to the tax rules that reduce
the relief on interest payments will have an impact.
Some investors do not appreciate that on
their death, inheritance tax will need to be paid,
along with the associated costs. The bill could be
reduced if property is owned through a company,
depending on how the company is structured.
Taking professional advice based on your
particular circumstances is now more important
than ever before.
The advantages for owning property through
a company include:
Growing your portfolio - profits made within a
company are taxed at corporate rates, which are
lower than individual tax rates. Savings can be used
to finance additional properties
Delayed income - people who pay 45% tax with
no immediate need for income can choose to take
out income in a later year, when there may be
less other taxable income - perhaps in retirement
Dividend income - from 2016/17 all taxpayers
will be entitled to tax relief on the first £5,000 worth
of dividends they receive each year
Finance/mortgage costs - these are offset
directly against income for corporation tax, whereas
higher and additional rate taxpayers who do not
own their property through a company will find a
disparity as income is taxed at 40% or 45%, while
tax relief on financing will be given at just 20%
Make sure you
Death has no impact on the ownership of
company assets. Passing the assets to other
generations can be achieved in various steps in
lifetime and on death, while retaining control.
Potential also exists to reduce the level of
inheritance tax that needs to be paid on company
shares compared with direct ownership.
Sounds good, but what about
an existing property?
Transferring an existing portfolio to a company
needs to be considered very carefully, as transfer is
likely to be considered a disposal (by the individual)
and an acquisition (by the company) and therefore
may attract capital gains tax (CGT) and stamp
duty land tax, both of which will need to be paid.
Incorporation relief may allow you to delay paying
the CGT until you sell the shares in the business.
Stamp duty land tax will need
to be paid on the transfer
Where this was once a minor expense, with a top
tax of 15% on higher value properties, an additional
3% needs to be paid on all bands now.
What about raising finance?
The majority of lenders are prepared to lend to a
company. The loan is secured against the property
and will generally have a higher interest rate than
loans made to individuals. Gone are the days when
it was difficult to raise finance.
Whatever you decide to do, the
tax changes are significant
To make owning property through a company
both successful and fruitful, ensure that your
arrangements are suitable for your needs and
tax profile. Make sure you fully understand the
implications by taking professional advice before
doing anything. This could save you thousands
of pounds, as well as unnecessary stress and