Tax opportunities for the property investment companies

The Basic Idea:

Commercial or residential property held inside a limited company is not tax efficient should it be sold and the proceeds returned to the shareholders.

Initially consider £100 profit arising within a company.

Avoid Tax Trap(resize)

Currently this would be taxed at 20%, leaving a net £80 dividend payable to the shareholders. This would net the shareholder £56, meaning an overall tax rate of 46% for those with income above £150k per annum.

Had the property been held outside the company (personally or via an LLP), the tax rate would be much lower at 28%.

Either way, there is a clear disadvantage to holding investment property (both commercial and residential) through a company.

The problem:

Moving from a corporate environment to personal ownership could well trigger two tax liabilities:

A corporation tax liability on the gain currently inherent within the company, and

An SDLT liability on the acquisition of the property from the company

A solution:

We have designed a solution to reduce the effective rate of tax down from 46% to 28% for any future increase in the property price WITHOUT TRIGGERING the taxes mentioned above.

This article is intended for guidance only, and professional advice should be obtained before acting on any information contained herein. Smith & Brown Limited cannot accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

Pointers

  • When commercial or residential property held inside a limited company is sold it is subject to a tax rate of 46 per cent (for those companies with an income above £150k per annum)
  • Had the property been held outside the company (personally or via an LLP), the tax rate would be much lower at 28 per cent
  • This creates a clear disadvantage to holding investment property (both commercial and residential) through a company
  • However, moving property from corporate to personal ownership could trigger two tax liabilities
  • These are a corporation tax liability on the gain currently inherent within the company, and an SDLT (Stamp Duty Land Tax) liability on the acquisition of the property from the company
  • At Smith & Brown we have designed a solution to reduce the effective rate of tax down from 46 per cent to 28 per cent for any future increase in the property price without triggering the taxes mentioned above
  • Get in touch to find out how we can help realise the full potential of your investment property

Apr 14, 2015