Buy property through a company

The UK property market 

There have been a lot of changes to the property market in the UK during 2016. Previously, all mortgage interest was deductible from rental income. This means that profits are artificially reduced by deducting the interest and hence less tax is paid - if you are a higher rate tax payer this could mean a reduction in tax paid to authorities of 40p for every £1 paid in interest.

Additionally, the Treasury brought in a new stamp duty tax surcharge on second homes. Stamp duty is the land tax paid on all properties. Previous to April 2016 a property investor paid the same amount of stamp duty as a first time property buyer. Now there is an additional 3% on the total sale price of the property to pay to the tax authorities for the purchase. 

In the UK there is a solution to both these problems and it's because both issues noted above are relevant to people investing in properties. The new legislation says nothing about property Companies.

Making property investing more efficient

Instead of purchasing the investment property in your name you should look to investigate purchasing the property through a Company. Setting up a Company can cost as little as £100. You can set up the Company and put capital (money) into the Company taking shares in the Company in exchange. You can then go and purchase the investment property through your newly established property investment Company.

The benefits of a Property Investment Company

The main benefit is that the interest from the mortgage on your investment property is still fully tax deductible. This allows you to continue to minimise your profits on which you will pay tax. Additionally, corporation tax through a Conpant will result in you paying tax at 20% rather than at your marginal rate which will likely be bigger. This will allow you to retain more money in your property business than had you purchased the property in your own name. The additional cash will allow you to start to save up for your next investment property even quicker. Keeping the money in the business will also allow you to control when to take the money out of the business ie not when you collect the rent, but when your normal income has dropped for example in retirement.

The second benefit is that by purchasing the property through the investment Company will mean that you are required to pay a lower stamp duty tax that is related to future rental income and not to the value of the property. For example, a property worth £500,000 would have required c. £50,000 of stamp duty to be paid if it was an investment property. Buying through a property Company will only cost c.£6,000!

Investigate - consider setting up an investment Company if you are going to invest in property.

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