Why You Need A Limited Company For Your Rental Properties

Online tax return service –  we often assist our clients with their property tax matters.

If you are looking for ways to reduce your tax liability and want to establish long term financial growth strategies, we often find property to be a great answer. 

Why does Tax Twerk care about property?

On a personal level – Property is one my biggest passions & interests.

Investing in property has been a proven wealth creation strategy. You can generate strong short term returns and in the long term your children can benefit from property assets too.

Before you step into the property market or expand your portfolio, it is worth considering if you should do so as a private person, or as a company. There are considerable tax implications you need to review.

The Scary Bit…

The tax that will be applied if you own your properties personally is the personal tax rate. This can be as high as 45%, depending on your other income sources. Capital gains are also important to think about, with a tax rate of either 18% or 28%, again dependent on your overall taxable income.

So why a limited company?

*You are likely to pay a lower tax rate if you own the properties through a limited company.

*Rental profits for a company are taxed at only 20%, when they are below £300,000 per year. This means you can reinvest profits into new properties at low tax rates.

*Mortgage interest will not be an allowable expense in the future for landlords. This means landlords won’t be able to claim any mortgage interest from their rental property income so they will have a higher tax bill.

*Also, the corporate capital gains tax is applied at 20%, which is usually lower than the private rate.

*If you want to get started in the property market or want to develop your portfolio, it is highly likely that you will grow you wealth faster through a company compared to personally owning the assets.

*If you are already a landlord in a private capacity, we recommend you continue to do so for your existing properties. Any new properties may be best purchased through a company, but the costs involved of moving a privately owned property to a company are often too high. Capital gains tax and stamp duty make this type of transaction unlikely to be profitable in the long run.

*Last but not least, if you own a property privately, and you want to transfer ownership to your children, extra taxes and costs come into play. There is inheritance tax and also capital gains tax that could apply. Only if you give the property to your children and live longer than 7 years after that, an exemption to the inheritance tax could be used.

*If you own the property through a company, you can make your children shareholders. This makes it very easy for them to gain financial benefits through dividends, capital distributions and even the sales of shares, without the extra inheritance or capital gaintax liability.

Our online bookkeeping team has extensive experience in helping our clients become financially independent through a wide range of wealth creation strategies. We also have a strong network of partners in the financial planning and accounting industries, who ensure that our clients are always in the best possible financial position.

Call us today if would like to find out how we can help you.