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January 10th 2020 / BY: Wisteria

Property Ownership – Individual Ownership or Setting up a Limited Company?

Key Points:

  • Tax rules have recently changed for landlords and individuals owning property.
  • Corporation Tax rates in the UK are low and so it can sometimes be more efficient to purchase property in a company.
  • As well as tax considerations, landlords need to consider differences in mortgage rates and also the number of years they intend to retain the property for.
  • Everyone’s situation is different so there is not a ‘one size fits all’ solution.
  • Taking advice early is key because once the property is purchased, it can often be difficult or expensive to transfer the property at a later date.

Over recent years a number of tax rules have made individual property ownership less attractive, often resulting in higher tax charges for landlords. These changes include the loss of mortgage interest relief, an additional three per cent stamp duty charged on new property purchases and the reduction in capital gains tax reliefs.

For those individuals looking to invest in property, this has made buying a property in a company more appealing. Corporation Tax rates are low and mortgage interest can be deducted in full. With careful planning it is often possible to regularly draw money out of the company for many years without triggering further personal income tax on the payments.

However, there are other considerations, such as any difference in mortgage rates between individual buy-to-let mortgages and corporate mortgages. There are also increased accountancy costs in running a company that can ‘eat into’ other tax savings. Due to the time and effort in setting up a slightly more complex structure, it also doesn’t tend to make sense where the intention of purchasing the property is just to rent it for two or three years.

So, should you be purchasing a new property in a company rather than as an individual? What’s the quick answer? Due to the number of factors involved, and because everyone’s situation is different, there is not an answer that fits everyone.

Many landlords realise that they will need the help of a tax adviser to make sure that they are getting the right advice and planning things from the start. Often it is best to work with an adviser who specialises in property tax, as they are often more familiar with the rules and more up to date as and when things change.

Wisteria work with landlords of all sizes, as well as property developers and others involved in the property sector. For more information about getting help from a property tax expert, please contact Wisteria on 0208 429 9245 or via their website: www.wisteria.co.uk.