Investing via a limited company

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PROS

You can still (currently) deduct the finance costs from the rental income.
It can be easier to transfer shares in a limited company rather than part of the ownership of a property.
  You pay a lower rate of  tax in the company, compared to higher and additional rates of income tax
  All costs and income will need to be appropriately accounted for and abide by the Companies Act 2006, which you may not do if you own property individually.
  Profits can be retained in the company rather than drawn as income, thereby avoiding income tax charges.
There are favourable rates on sale of investment property compared with a potential 28% when selling individually owned property. There are also favourable capital gains tax rates for disposing of shares in a company rather residential property which is charged at a higher rate of capital gains tax
  Indexation allowance on sale of investment property allows for the effects of inflation up to 1st January 2018
 

CONS

If you have an existing portfolio, you can’t just transfer it into a company as this may trigger both stamp duty and capital gain costs as you will have deemed to have ‘sold’ the properties to the company from your ownership. However, incorporation relief may be available to some landlords operating a company; it is essential you take expert advice. Also, if you are running a legitimate partnership, there may be grounds for stamp duty savings in the future.
You need to consider your financing options if you hold property in a company, although improving, not all buy to let lenders lend on company held lets.
The total of the income tax on dividends and the corporation tax on the company can combine to give an overall less favourable tax bill depending on your circumstances.
You can only take income from the buy to lets if you make the required profit.
Corporation tax is currently planned to reduce, but once your property is in a company you won’t be able just to transfer back to your own ownership without considering your tax implications.
You will have to produce accounts according to rules and regulations laid out by the government and this may mean incurring accounting bills of £1,000 a year or more.
Bank accounts will be considered ‘company accounts’ so won’t usually be free of charge
Exemptions and allowances of personally owned property would be lost, eg annual exemption, personal allowances.
For those who own property personally, there can be benefits when selling the property if you have lived there. This is the opposite for company-owned property, and there can be serious consequences if you live in your company-owned property.

 


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