Property: Hold personally or in Ltd Co?

Property: Hold personally or in Ltd Co?

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Would like to find out pro's and cons of above. As I understand it taxable profits on overseas letting business would be treated seperately whether in ltd co or not, so no offset against other proerties losses?
steve ingrey

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By User deleted
02nd Aug 2005 13:21

Tax on Gain is less owned personally
If the property is a commercial one then Taper Relief could be the most significant issue to consider.

I did a worked example last month for a client...

Property cost £250k, might sell for £550k after 5 years, RPI assumed to be 2.5% pa.

Ltd Co tax on gain was worked out to be an estimated £80k in CT, then on top of this higher rate tax if directors wanted to have the money out of the company.

As a commercial property qualifying for taper relief, owned in husband & wife names, the tax liability for same purchase/sale figures worked out to be as low as £11,600 if not higher rate taxpayers or upto £23,200 if higher rate taxpayers.

Of course, in personal names the rental income over the 5 years would have sufferred tax at highest personal tax rates instead of perhaps CT at small companies rate, but far outweighed by the tax due on the gain.

Apart from this, I've seen a number of Ltd-Co owned property problems in recent years - properties "locked in" to the Ltd Co as tax so high to get properties out.

So, I see no advantage to company ownership as a general rule with the current regime of taxing capital gains so low for individuals and so high for Ltd Cos.

The above comments refer only to UK commercial property - NOT overseas or residential letting.

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By AnonymousUser
02nd Aug 2005 14:29

I agree with
...the previous respondent but would add that the same conclusion is likely to apply to UK residential letting property as well.

It is true that the maximum CGT taper relief for a personally-held property is only 40% (as opposed to 75% for business properties) but that still brings the rate down to 24% (as opposed to 10%).

Moerover, there is the problem of the double tax charge on the gain if the property is held inside a company. Extracting an apreciated property from a company incurs both corporation tax on chargeable gains at the corporate level and capital gains tax or income tax at the shareholder level.

The same problem exists for overseas properties, except that the corporate level tax is likely to be the capital gains tax of the country where the property is situated.

The rental income is also likely to be primarily taxable in the foreign country, with credit relief being given against the UK tax on that income.

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By MrUK1953
03rd Aug 2005 12:40

Horses for courses
I have written a book on the tax implications of rental property ownership. It mainly looks at direct ownership, but also considers some advantages of owning through a company or even a pension scheme. I have written this for the financial adviser market to give an IFA a basic grounding in the subject, but it may be of some interest.

My own view is that there can be distinct advantages in owning the property through a company. The company would be a special purpose vehicle for the ownership of just that one property. When you come to sell, you sell the company, not the property. This will enable you to take full advantage of taper relief, but still only pay between 19% and 30% tax on the rental profits. It will also, incidentally swap SDLT of up to 4% for stamp duty of only 0.5%.

I agree that this whole area needs very specialist advice, and there is certainly not one solution that suits all. If the client has trading companies benefitting from CT rates lower than 30%, the change in thresholds could be quite important and the consequent disadvantage may outweigh the advantages, and the benefit of lower tax on the profit doesn't help if the client wants all the profit out to spend anyway. Horses for courses!

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By AnonymousUser
03rd Aug 2005 11:23

offshore solution
We are a firm of Chartered Accountants (ICAEW) Member based in Gibraltar. There can be considerable advantages in holding overseas properties in an offshore company or in a company based in a low tax country. Much depends if you intend to remit income back to the UK where you would be liable to taxation on this income. Also consideration must be taken to taxation under the Finace Act but liability would be dependant on many factors, such as ownership and the tax rate in the holding companies jurisdiction. If the property is in Spain for example and the property is owned by a spanish company and in turn the spanish company is owned by a Gibraltar company, if you sell the property there are no taxes to pay in Spain on the transfer (gain). You can transfer the property easily to other family members. There are also no inheritance tax liabilities. You would be liable to pay tax in Spain on the rental income but tax can be reduced/offset by any borrowings. It is also possible for foreign companies to hold UK assts/properties with tax advantages.

If you would like to find out more, please contact Ian Poornan at AMP & Partners Limited at [email protected]

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Morph
By kevinringer
03rd Aug 2005 11:31

Foreign property - a minefield!
I don’t have any experience of this but I have been told that owning a property through a company can have two disadvantages:
1. The owner will probably be a director and therefore could incur a Benefit in Kind charge when occupying the property.
2. The company could be “associated” which would have adverse tax consequences for any UK trading companies also owned.

I’ve also been told that in some countries the local laws result in significant advantages if the property is held by a company (such as a societe civile immobiliere in France).

It’s a minefield and varies depending upon the county, the level of losses/profits etc, how long you anticipate retaining the property for, anticipated gains on disposal, what you intend to do with the funds generated, whether will occupy the property yourself, other limited companies and so on. You need to obtain specialist advice.

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