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Where Taxpayers and Advisers Meet

Purchasing and disposing of investment property - better as individual or ltd company?

Joined:Wed Jul 28, 2021 11:19 pm
Purchasing and disposing of investment property - better as individual or ltd company?

Postby Woollenclouds » Thu Jul 29, 2021 12:25 am

Hi there,

My husband and I are about to purchase an investment property which we would like to run as a holiday let.
We have borrowed against our main residence to fund the purchase and will have no mortgage on the new property.
We are both higher rate taxpayers.

We are considering our options with regards to whom should buy the property
1- we could buy as individuals
2- we could lend the money borrowed to our ltd company of which we are both shareholders and get the company to buy the property.

As far as I can tell option 2 would make better financial sense as we would not be eligible for any mortgage interest relief as individuals (the mortgage is secured against our main residence) but lending the money to the ltd company would enable us to claim tax relief as a "Qualifying loan interest". Is this a correct assumption?

At the point of disposing of the property, what would be the tax implications if the company is purchased through the company?
I understand as an individual we would be eligible for some CGT tax allowance but this does not apply to companies.

Thank you in advance.

Joined:Mon Mar 11, 2019 4:22 pm

Re: Purchasing and disposing of investment property - better as individual or ltd company?

Postby Jholm » Thu Jul 29, 2021 1:52 pm

I will let someone else reply regarding the company side of things, as they would be better suited to do so.

If done as individuals, you would be able to claim the mortgage interest regardless of what property it is secured against, provided the purpose was entirely for the new property. If you run it as an FHL (and hit the eligibility requirements), you will be able to claim the full mortgage interest anyhow.

Subject to the usual requirements, a future sale of a FHL can be eligible for entrepreneurs relief at 10% on the entire gain (assuming you have not used the max available relief already).

If considering an FHL, make sure you are aware of the requirements for it to qualify, including the grace period elections that need to be made should it fail to qualify in a year.

If lending money to the company, you could use it as an opportunity to extract funds (potentially tax-free subject to allowances) in the form of interest repaid to you on the loan.

FHLs usually attract higher income than normal rental properties but the additional costs can be significant, not to mention the admin and maintenance involved.

Due to the different tax treatment and availability or capital allowances, it might actually save you money to appoint a tax adviser to deal with it, should you opt for the FHL option.

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