For most property investors its almost a certainty that they will be borrowing some, if not most of the money to fund their fledgling (or in some cases burgeoning) property empire. Also, for most it will be something they're doing in addition to holding down a day job, or running their own business. For this reason, becoming a landlord is for most people an investment choice, rather than their day job (although I would question why it couldn't be both).
The down side of this means that typically, any rents you make end up getting taxed at your highest rate of tax, which for most is 40% and for some even as much as 45%. What this means is that you've got to pay a big chunk of tax before you can start paying down those mortgages.
So, I'm guessing most of the initiated property investors reading this already know that, but may still be wondering how a company can possibly help that situation as companies still pay tax right? Well, yes they do, but from April 2015 all companies in the UK regardless of size and/or activity only pay tax at 20%, which lets face it is a lot better than 40%/45% right.
Now, this is where the real magic happens, because what this means is that you now have 80% net rents (after expenses of course) to pay down those mortgages, which in turns means you can buy more properties faster. Therefore, provided you are looking at property investment as just that, and investment, you're growing your fund a lot quicker by using a company structure!
Well, that's just dandy for tax planning purposes, but what about the banks? I'll admit, some don;t like the idea of lending to a brand new company, but there are those out there that will. Yes, you might pay slightly more in interest, perhaps as much as a a couple of percent, but you're saving 20%/25% in tax, so its well worth it.
Property investment companies don't work for everyone, it is very much dependant on your own circumstances, goals and objectives, but where those elements align it can be a powerful piece of structuring. Unfortunately most of us look at transactions in their component parts, instead of looking at the bigger picture. That's where really good, focused tax professionals can help you make the difference. We don't just save you tax, but in a lot of cases that tax saving can make an nonviable project viable in terms of cashflow. So, if you're a property investor, or just have what you see as a rather knotty tax problem why not get in touch and see what we can do for you?
Disclaimer - The above blog does not constitute advice and not should be taken as such. The author accepts no responsibility for losses arising from taking action based on the contents of this blog alone.
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