Buying property via a company
Discussion
I am thinking about buying property but doing it through a company opposed to buying it personally.
I am attracted to this as I like the idea of offseting rental income (which will be modest) against say business expenses such as leasing a car and getting posisble VAT back.
Has anyone done this and what do you think?
I am attracted to this as I like the idea of offseting rental income (which will be modest) against say business expenses such as leasing a car and getting posisble VAT back.
Has anyone done this and what do you think?
Can't be done - at least, not with those objects in mind.
Rental income is not "Trading" income and therefore has to be accounted for totally separately for tax purposes. That means that business expenses can only be offset against business income and rental expenses can only be offset against rental income. The two cannot be muddled together (except in very exceptional circumstances).
If the business is registered for VAT, the VAT is charged on its BUSINESS income and VAT is claimed back on its BUSINESS costs. The Rental income and expenditure is outside of these business transactions. In fact, the VAT man might even try and block some of your legitimate business Input VAT claims under the " VAT Partial Exemption Rules".
There is the Option to VAT Rental Income which you could do but that would mean you would have to charge VAT on your rental income (it is normally VAT Exempt). This might not be a problem if your tenant is a VAT registered trader but it would be a big deterrent to non-VAT registered potential tenants. What's more, if you went down the Option to VAT route, you would have to charge VAT on the sale of the property - which would put off some potential purchasers. Obviously, if you have taken out this option, you would be able to claim back the Imput VAT on any Rental Property related costs. This could be worthwhile if you anticipated large capital costs or major repairs. Otherwise, it is of dubious benefit.
If and when the property is sold, the company would be charged the appropriate Capital Gains Tax. Although companies pay Capital Gains Tax based on their maximum Corporation Tax rate - which may be lower than the Income Tax rate that would be charged on an individual, you need to remember that companies cannot make use of the individual annual Capital Gains Tax allowance (currently £8,500). In the case of a property jointly owned by individuals, any Capital Gain would be reduced by these £8,500 amounts. If two people were involved, that's a £17,000 reduction, £25,500 for three people and so on. Even after the property was sold and the company had paid its Capital Gains Tax, the indiviual;s would still need to access the proceeds of the property sale. Once they extracted the cash from the company, they would need to pay Income Tax and possibly National Insurance on those amounts.
Finally, if the rental income became the main source of the company's income, it would lose its "Small Trading Company" exemptions and suffer Corporation Tax on its profits at much higher rates.
Rental income is not "Trading" income and therefore has to be accounted for totally separately for tax purposes. That means that business expenses can only be offset against business income and rental expenses can only be offset against rental income. The two cannot be muddled together (except in very exceptional circumstances).
If the business is registered for VAT, the VAT is charged on its BUSINESS income and VAT is claimed back on its BUSINESS costs. The Rental income and expenditure is outside of these business transactions. In fact, the VAT man might even try and block some of your legitimate business Input VAT claims under the " VAT Partial Exemption Rules".
There is the Option to VAT Rental Income which you could do but that would mean you would have to charge VAT on your rental income (it is normally VAT Exempt). This might not be a problem if your tenant is a VAT registered trader but it would be a big deterrent to non-VAT registered potential tenants. What's more, if you went down the Option to VAT route, you would have to charge VAT on the sale of the property - which would put off some potential purchasers. Obviously, if you have taken out this option, you would be able to claim back the Imput VAT on any Rental Property related costs. This could be worthwhile if you anticipated large capital costs or major repairs. Otherwise, it is of dubious benefit.
If and when the property is sold, the company would be charged the appropriate Capital Gains Tax. Although companies pay Capital Gains Tax based on their maximum Corporation Tax rate - which may be lower than the Income Tax rate that would be charged on an individual, you need to remember that companies cannot make use of the individual annual Capital Gains Tax allowance (currently £8,500). In the case of a property jointly owned by individuals, any Capital Gain would be reduced by these £8,500 amounts. If two people were involved, that's a £17,000 reduction, £25,500 for three people and so on. Even after the property was sold and the company had paid its Capital Gains Tax, the indiviual;s would still need to access the proceeds of the property sale. Once they extracted the cash from the company, they would need to pay Income Tax and possibly National Insurance on those amounts.
Finally, if the rental income became the main source of the company's income, it would lose its "Small Trading Company" exemptions and suffer Corporation Tax on its profits at much higher rates.
Edited by Eric Mc on Saturday 11th November 19:51
srebbe64 said:
Personally, I have an inbuilt reaction against a company owning property, or indeed building up too much cash. The reason being, if the company ever got into trouble those assets are up for grabs by creditors. By owning property personally these assets are ringfenced from such.
What he said.
pugwash4x4 said:
what they said
all commercial property owned by Myself and my business property is owned personally. It is managed by a limited company, and is let to limited companies.
What's the benefit of managing by a ltd company? Purely claiming back VAT on VATable rentals, or something else?all commercial property owned by Myself and my business property is owned personally. It is managed by a limited company, and is let to limited companies.
Don't need to be a limited company to do that.
Going down the "Option to VAT" route with rental properties is fraught with danger and should only be undertaken if it is absolutely and positively the right thing to do.
The only advantage of having rental properties owned by a company is the fact that taxes paid on the rental income would be charged at Corporation Tax rates rather than personal Income Tax rates. This could be worthwhile if you are a higher rate tax payer from an Income Tax point of view. The problem of extracting the income out of the company is still there however. Any income you pull out of the company for yourself will be subject to Income Tax and possibly NI
The CGT issues will also remain.
Going down the "Option to VAT" route with rental properties is fraught with danger and should only be undertaken if it is absolutely and positively the right thing to do.
The only advantage of having rental properties owned by a company is the fact that taxes paid on the rental income would be charged at Corporation Tax rates rather than personal Income Tax rates. This could be worthwhile if you are a higher rate tax payer from an Income Tax point of view. The problem of extracting the income out of the company is still there however. Any income you pull out of the company for yourself will be subject to Income Tax and possibly NI
The CGT issues will also remain.
Edited by Eric Mc on Sunday 12th November 22:54
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