Company set up

[Jane Darby]

Dear colleagues

I would like some advice on what is the most effective way in setting up.

As background, I own one property outright. I am considering taking out a buy to let mortgage on this to release equity to invest in two further properties.

On the basis I plan to take out mortgages, should I set up a formal business or remain as an individual who is self employed?

I currently work so am employed also.

With thanks

JD1

[Trenners]

Hi JD1,

I am sure you will get lots of advice from the qualified accountants on the forum.

As a landlord, I have purchased my portfolio of properties in my own name as it is easier to raise finance personally, than in a company's name, and

profits can be offset against my personal tax allowance (and my wifes personal tax allowance) and any capital gains can be offset against our annual

capital gains tax allowance.

I make these points because companies don't have a personal tax allowance (you pay tax on all profits) and companies do not have a capital gains

tax allowance (and any capital gain is also taex as profit). Company taxation is hirer that capital gains tax (at 18% at the moment).

So as a company - mortgages are more expensive and personal / capital gains tax allowances don't exist ..... so I am not sure why you would choose to

create a company rather than establish a personal portfolio .....

Good luck

Mark

[Simon Dewsberry]

Hi JD1,

I am sure you will get lots of advice from the qualified accountants on the forum.

As a landlord, I have purchased my portfolio of properties in my own name as it is easier to raise finance personally, than in a company's name, and

profits can be offset against my personal tax allowance (and my wifes personal tax allowance) and any capital gains can be offset against our annual

capital gains tax allowance.

I make these points because companies don't have a personal tax allowance (you pay tax on all profits) and companies do not have a capital gains

tax allowance (and any capital gain is also taex as profit). Company taxation is hirer that capital gains tax (at 18% at the moment).

So as a company - mortgages are more expensive and personal / capital gains tax allowances don't exist ..... so I am not sure why you would choose to

create a company rather than establish a personal portfolio .....

Good luck

Mark

Ditto !

How are you Mark ?

The Rodent

[plym77]

not just that, but there could be double taxation which can be avoided if personal.

For eg, a portfolio of property for husband and wife making £50K per year

PERSONAL

-split profits equally - tax paid at marginal rate (20% or 40%) each with personal allowance to offset (depending on other income)

- disposal = CGT annual exemption (£10100 each per year) then tax at 18%

COMPANY

- corporation tax at 21% (to rise to 22%) - tax 1

- extract income (slary or dividends)- both have separate tax consequences (but personal allowances available)

- on disposal, no CGT annual exemption each and pay corporation tax rate (21/22% at this level)

- again, extraction of profit on disposal would be via salary/dividend = more tax

There are various issues to consider but in most circumstances, it isnt worth holding a residential property portfolio in a limited company due to the double taxation. it can work in some instances, where for example annual profits are high and not necessarily needed for you and you are a higher rate tax payer - in this instance keeping profits in a company taxed at 21/22% rather than paying higher rate tax potentially on the income, may warrant considering this structure further. there are a few other instances it can work in, but in most cases it is inadviseable.

hope this helps