Ways to own your property
Whether it's in your own name or jointly with another individual, in the name of a limited company, in a Limited Liability Partnership or inside a Self Invested Pension Plan (SIPP), deciding which method to use depends on whether you are planning to hold onto a property for capital growth over a period of time or profit in the short term.
Raising finance for a purchase in your own or joint names is usually the easiest option. If you own a property within an LLP a simple structure can be put into place to put you in the best possible position to raise finance. Accountants 4 Landlords can put you in touch with lenders who would be best suited to your personal circumstances.
Raising a Deposit
Deposits are typically 25% to 40% of the purchase price. Should you need to raise the money against your house or draw it from an existing business it must be done in such a way to minimise tax charges as funds drawn will be taxed upon you personally. Tax free options are available, especially if an LLP is in place. Link through to article about mortgages
Tax Implications of Rents Received
If owned personally, any profits made after deduction of all allowable expenses will be charged income tax at the relevant rate (20%, 40% or 45%, depending on your level of other income). If owned by a company, the profits will be charged to corporation tax at 20%. Withdrawal of the income from the company will result in further personal expensive tax charges, with an effective rate of between 20% and 52% dependent on your level of other income. Note that due to a proposed future restriction of tax relief on financing costs, the tax charged on your rental income may increase substantially.
Tax Implications of Sale
Any increase in value is charged Capital Gains Tax (CGT) upon sale and if owned personally, additional allowances are available to reduce the chargeable sum. The rate of tax payable will depend on your overall income in the year of sale and the rates in force at that time. A guide based upon current tax rules is 18% for any part of the gain falling within your basic rate tax band or 28% on the excess. If the property is commercial and used for your own business rent free, you may be able to reduce the charge to 10%.
Corporation tax is payable on any gains if owned by a limited company. Extraction of the profits leads to a further tax charge upon you personally. Owning the property in a SIPP leads to a tax free sale, but you do not have access to the funds until you reach 55 and only 25% of is tax free. The remainder is still subject to income tax rates upon withdrawal. Owning the property in an LLP allows you to set out in a partnership agreement the best allocation of capital profits and gives access to the best tax position possible at the date of sale using a combination of personal or company rates.
Developing a property brings many complicated VAT issues. If this is something that you are considering please contact a member of our team for advice specific to your circumstances.