property purchase

[johnjane]

I wish to purchase a property on a buy to let basis as part of my retirement planning.

I am wondering whether I should purchase the company personally, with net income, or whether I should get my company to purchase the property after corporation tax only.

[accountant@uktaxshop]

John/Jane

Putting a residential let into an existing ltd co. could cause some problems with respect to whether it is "trading" or "non-trading". This has serious implication on the tax of gains if you sell the company or wind it up.

The effect will depend on the nature of your company, and its size. Your normal accountant should be able to advise on this (?)

If you need some help planning your buy-to-let, such as working out the tax implications of the various options, please let me know.

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436

[Ian McTernan CTA]

You may wish to purchase through a company, but would not advise to purchase through a trading company because, as James says, this can have serious consequences in the future.

A company vehicle can be advantegeous if the following applys: you are planning on keeping the property a long time, you do not need any of the income prior to retirement, you may purchase another one in due course with funds accumulated in the company, you have borne in mind any capital repayment or repayment vehicle is not deductible in any case. Company is advantegeous because it attracts a lower rate of tax as you go along and hence can build up funds faster than if you own the property yourself, the downside is capital gains tax is higher for the company than for you at current inflation levels, but this diminishes the longer you hold it as taper relief maximum brings you down to 24% effective rate on the gain whereas indexation allowance does not stop. Then you have the problem of extracting the funds from the company once the property is sold, which incurs more tax, so the issue is not straightforward!

Ian McTernan CTA
McTernan Associates Ltd
Chartered Tax Advisers
ian@imcternan.com