Holding Investment Property Through a Company
Many individuals hold property directly and that is often the most tax efficient way to do so. However there can sometimes be circumstances where there cn be benefits to holding te property through a company.
The main tax benefits are the lower rate of tax to pay on income. If a company’s taxable profits are less than £300,000, then it will only pay tax at 20% rather than the 40% an individual would pay. If there is a los on renatl income that cn be offset against other company income.
When it comes to selling property, whether there could be a benefit for capital gains tax depends. The recent Pre Budget indicated a fall to 18% for capital gains on disposal by individuals after 5 April 2008. However that is at the price of a loss of indexation relief and taper relief. Companies can still claim indexation allowance. Depending on how long property is held for indexation allowance can significantly reduce tax on a gain.
The chief disadvantage to holding property in a company is if you want to take out profits as the company sells the property, paying tax. Then further tax is paid when the profit is extracted from the company. One way round that is to sell the company, which gives only one layer of tax. Also that can be attractive to a purchaser as stamp duty is only payable at 0.5% on shares but can be as high as 4% on property.
If you don’t want to extract the profits then lower tax rates in the company can be a useful way to build up funds.