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Thinking Of Acquiring An Investment Property?

Should you do it personally or via a limited company?



This is a common question asked by property investors. In order to answer, I not only have to consider the tax consequences of the various structures, but also what the client's intentions are ...

From one investment property to a thousand, you need to know how to minimise your tax!

From one investment property to a thousand, you need to know how to minimise your tax!

copyright: bluebay / 123rf stock photo

During our discussions, I get to ask a lot of questions of the property investor. Some of those I would ask them are as follows:

  • How do you intend financing the acquisition?

    If you are borrowing to invest, with the penal tax changes that took effect from April 2017, there is a strong tax case for acquiring a property via a company.

    However, how willing are mortgage companies to lend to companies? There is still a disparity between rates for individuals and businesses, yet we are continuing to see lenders enter the corporate market and so rates are falling. Additionally, providers are starting to apply more stringent stress tests to individuals than companies.

  • What are your expansion plans?

    Companies pay a lower tax rate on income than individuals at a current rate of just 19% (17% from 2020) compared to a maximum rate for a person of 45%. There is, therefore, a clear advantage to using a company if you want to retain cash to acquire further properties.

    However, if you are a basic rate taxpayer or require the income from your property portfolio to cover your day-to-day living expenses, a company may not be for you. Although it pays a lower rate of tax on its income than an individual does, you still need to extract the money which may incur further liabilities.

    In addition, if you are acquiring just a few properties then the administration cost of having a company is likely to outweigh any tax saving.

  • Is this a long or short term ownership?

    If your strategy is about long term investment, then a company may be beneficial. It can retain its profits after tax to pay the owners an income into retirement. The level of income can be set to meet the owners' requirements and minimise their annual tax liability as far as possible.

    Conversely, if you are looking to make a short-term gain, individual ownership may be better. You can make use of your capital gains tax annual exemption (assuming that you are not trading), or if you need to extract profits from a limited company, you may end up worse off due to the tax payable on the income that you draw.

  • Have you thought about inheritance tax?

    A company can provide a great deal more flexibility when you are looking at passing on wealth to future generations. It is a lot easier to gift a few shares in a company as opposed to gifting a small percentage of a property.

    In addition, there are more planning opportunities for companies, for example, if you undertake or are considering property development, doing that either through the same company or via a subsidiary company can be beneficial from an IHT perspective. Remember though, there are commercial risks associated with this you need to be aware of.

Of course, each property investor has their own unique circumstances, so in a blog post, I can only offer general pointers. Remember that you should always take professional advice before making any financial decisions.

"From one investment property to a thousand, you need to know how to minimise your tax!"

If you'd like to talk to me about the best tax structure for your property investments, do give me a call on 01908 774323 or click here to send me an email enquiry and we can have an initial conversation to see how I can help you.

Until next time ...


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More about Helen Beaumont ...

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.