PRESS RELEASE: 7 March 2004

Property investors, save £10,000 by setting up a Ltd company

The first £10,000 a company makes is TAX FREE!

The main factor driving incorporations over the last twelve months has nothing to do with limited liability etc. Instead the growth in company formations has been sparked by the introduction of the £10,000 starting band for corporation tax when tax is charged at 0%.

However, Ian McTernan, Chartered Tax Adviser and one of the Property Tax experts on www.taxationweb.co.uk, warns: "Admittedly, at first glance this rate of tax looks very attractive compared to personal tax rates. However, basing a decision solely on this would be very short sighted as there are a number of other factors involved which should be considered when deciding whether to use a company. For example, the corporation tax savings may well be outweighed over the longer term by problems extracting gains from the company."

In his e-book 'How to use companies to cut your property tax bills' Ian notes that any decision must be carefully weighed up after examining your own circumstances, goals and aspirations. If, for example, you want to gift a property to your son, then this will incur a capital gains tax liability if held outside the company. However, if you have the property inside a limited company, your son can subscribe for some shares. If this is done then the ownership can pass to your son tax-free, as the value of the transfer can be held over for capital gains tax purposes.

As a higher rate taxpayer, you pay 40% on your profit and gains. For a limited company, the tax rates are between 0% and 30%, a considerable saving! Also, a limited company can pay out profits in the form of dividends, which attract under present legislation no National Insurance Contributions. You can use this to determine the income you receive in a particular year. So, some years you may take money and some years you may not. You only pay tax on the amounts you take. As an individual you are taxed on all your income whether you want it or not!

And finally, imagine you buy a buy to let property, and your tenant has an accident, falling down the stairs of the property as one of the steps was not properly maintained. He successfully sues you and not only do you lose the property to pay for the settlement, but you have to sell your own residence as well! This can be avoided by owning the property in the limited company, where the company has LIMITED LIABILITY!

If you have any questions on property tax, visit www.taxationweb.co.uk, where you will find a host of articles, news updates, and you can participate in the free property tax forum, where taxpayers and tax professionals exchange questions and answers. For Ian's e-book, visit www.taxationweb.co.uk/propertytax/ebook.

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