Buying Property is a bit like buying any other asset except that property or real estate can not be easily moved and accordingly is given (?) special treatment by the Law and the Inland Revenue. Keeping control of your costs on acquisition and thereafter can make a big difference. Don’t treat this as ‘DO IT CHEAPLY’ since this can cost more in the long so spend your money wisely, take professional advice at every stage and enjoy the profits.
A question that is often asked is should the properties that I own be in a Limited Company. This is a big subject but if you actively manage your properties and have 6 or more then the Revenue could class it as a trading business rather than an Investment Company. There are many deductions that a trading business can claim when compared with a portfolio of investment properties (Investment Company). The buying and selling of property will be treated as a trade and although there are no Capital Gains Tax exemptions (as for individuals) the maximum tax rate is 30% and can be as low as 21%. Whereas for individuals the rate is 18% for Capital Gains but trading income is assessed up to 55%.
However for you to extract profits this will be by salary or dividend and these are taxable on you as an individual. If you are considering a long-term proposition then the use of a Limited Company could be a good option especially as you can sell or transfer the shares and the maximum stamp duty is 0.5% on share transactions. Take professional advice before embarking on this strategy.
How can we help
Before you rush off and buy that property it can be very tax efficient just to consider in whose name(s) and in what proportions it should be acquired. This is a wide subject and it can be expensive to make changes after purchase. We will help you with the answers if you just ask.
Using a Limited Company can be very tax-efficient but how to get the property into the company at the minimum cost and to avoid Capital Gains Tax on transfers is very important. So if you wish to consider this please just ask.
We can also make calculations of the capital gains tax that could be payable on sale and look and see if there is anyway to reduce the liability. Ask before you even put the asset up for sale.
Further Reading on Property Portfolio
- How to use companies to cut your property tax bill, by Ian McTernan
- Property Guides, by Themovechannel.com
- Buy a house for your student child?, by The BBC
- The Complete Guide Buying Property in Spain, by Charles Davey
- Mortgages, by The Financial Services Authority (FSA)