properties: transfer into ltd company or keep in our names?
Discussion
Have a small number of properties - 3 small new builds and a large renovation project - apart from the house we live in.
If/when sold the new builds would attract capital gains tax. Clearly, I want to reduce this liability. I have had a couple of property developing friends suggest moving all the development property into a limited company.
BUT, would the reduction of tax be offset by the extra costs in accounts etc etc and would I lose the flexibility of owning the properties, ie, being able to use them as security for future borrowing etc?
If/when sold the new builds would attract capital gains tax. Clearly, I want to reduce this liability. I have had a couple of property developing friends suggest moving all the development property into a limited company.
BUT, would the reduction of tax be offset by the extra costs in accounts etc etc and would I lose the flexibility of owning the properties, ie, being able to use them as security for future borrowing etc?
Invvestment Property conmpanies pay higher rates of Corporation Tax compared to small trading companies.
Investment Property companies will pay CT on their rental profits and CGT at CT rates on the gains when the property is sold.
The cash generated by the disposal of properties needs to be withdrawn from the company by the individuals who own the company. At that point it will also be subject to Income Tax and possibly National Insurance.
Investment property companies have more onerous reporting requirements compared to normal trading companies.
Companies do not receive the annual Personal CGT Allowance (currently £8,800 per person).
TRADING property companies can escape some of the more onerous aspects of INVESTMENT property companies.
Whether a company is TRADING in properties or INVESTING in properties is amatter of fact, not choice. Generally, if a company derives rental income from its properties, it is an investment company. If it merely buys, develops and sells property, it is trading.
Investment Property companies will pay CT on their rental profits and CGT at CT rates on the gains when the property is sold.
The cash generated by the disposal of properties needs to be withdrawn from the company by the individuals who own the company. At that point it will also be subject to Income Tax and possibly National Insurance.
Investment property companies have more onerous reporting requirements compared to normal trading companies.
Companies do not receive the annual Personal CGT Allowance (currently £8,800 per person).
TRADING property companies can escape some of the more onerous aspects of INVESTMENT property companies.
Whether a company is TRADING in properties or INVESTING in properties is amatter of fact, not choice. Generally, if a company derives rental income from its properties, it is an investment company. If it merely buys, develops and sells property, it is trading.
Edited by Eric Mc on Monday 8th January 12:52
They do.
From the moment one is born one automatically has all the tax aloowances and reliefs available to anyone else.
The problem is not the fact that the child doesn't have an allowance, but more the fact that the child has no assets to dispose of. Merely gifting a share on an asset to a child is not really allowed - without the person doing the gifting accounting for any tax arising.
Check out all the Anti-Settlement legislation that exists.
From the moment one is born one automatically has all the tax aloowances and reliefs available to anyone else.
The problem is not the fact that the child doesn't have an allowance, but more the fact that the child has no assets to dispose of. Merely gifting a share on an asset to a child is not really allowed - without the person doing the gifting accounting for any tax arising.
Check out all the Anti-Settlement legislation that exists.
Eric Mc said:
If he has the ability to pay for it, yes.
What if there was a trust deed, saying that a % of the property was your childs (which happened to equate to their CGT limit)and on disposal you put that share into the childs savings bond?
Does that mean I could with 2 children and a wife use 4 CGT allowences when selling?
Eric Mc said:
That is getting into specialist (and expensive) tax advice areas. I would not comment on such arrangements - except to say that there is now a raft of anti-avoidance legislation surrounding the use of trusts.
Cheers Eric. I am reading that as "good idea, might work, could get caught out but worth a punt!" in accountancy speak. I will run it by my accountant when tax time comes around again.
Adrian
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