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Rented property an investment or a business


vivien24

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We own 4 tenanted properties and have always classed them as investment property on income tax forms.

However we now wish to increase these to 6 as we are both now retired (husband and wife) and need to receive more income.

What would be the advantages/disadvantages of becoming a company instead? We would probably use interest only mortgages on the 2 new properties so I know we can set the interest payments against tax anyway.

Any other major things that would benefit us if we were a company?

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What would be the advantages/disadvantages of becoming a company instead? We would probably use interest only mortgages on the 2 new properties so I know we can set the interest payments against tax anyway.
Any other major things that would benefit us if we were a company?

Well you can hardly list that as a benefit because you are incorporated .....its a benefit regardless of the arrangements.

There are very few advantages. See the post entitled 'tax on rent' where I have given a little more detail.

Remember......

* Moving your existing X4 properties into a limited liability company will incur some or all of the following.....legal fees, stamp duty, capital gains tax.

* If you have mortgages the rates will probably carry a premium. The lenders may not agree to having them held within a limited company.

* Profits will be subject to corporation tax, remaining funds will belong to the company not you as an individual.

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Because of my financial situation tax-wise I have looked at becoming a limited company a few times over many years and each time the answer has been..... it is not worth doing so.

Richlist's comments to you are worth taking note of so I won't repeat the obvious.

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A relation of mine was interested in a portfolio of 5 properties held in a limited company by another member of the family with a mortgage on a ridiculously low rate, the plan was to sell the company and the mortgage would have transferred with it. Which would have made it quite desirable.

Not sure how that contributes to the original post but thought I would add it.

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Which would have made it quite desirable.

I can understand how a low interest rate is a positive but wouldn't that automatically be cancelled out by all of the negatives ?

* Corporation tax on profits is 20% (not 10% as previously posted).

* The remaining profits belong to the company not the landlord.

* Extracting those profits will incur a further 20% or 40% income tax after personal allowances.

* Dividend payments complex and likely to incur some tax liability.

* Higher running costs for limited liability company.

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I formed a Ltd Co for 1 property to take advantage of the old capital gains tax set up prior to it's change some years ago.

It never makes any revenue profit as I charge the company that figure for my services. So I still see the rental profit, effectively, added to the rest of the portfolio, as it would have been anyway.

The mortgage on that property has my personal assurance underwriting it so it wouldn't be feasible to sell on with the attractive mortgage, well I wouldn't want a new owner having power over my personal assurance anyway. So closing out the present mortgage would be the only way. By then of course it is no different to just a straight sale.

Twice a year I've to carry out the admin as required by companies house. Not overly cumbersome but more than I would like.

On paper I've saved some on capital gains tax but as it wouldn't have been sold by now anyway I don't see it. In all I shouldn't have bothered.

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