Owning A Property – Personal or Under A Company?

Owning a property – Personal or under a Company

As a citizen of UK, you should be aware of the changes that tax authorities have brought in effective from 6th April 2020. One such provision has removed residential property financing cost as a deduction, which means payments such as mortgage interest will not be deducted from total income. Such provision is only applicable to taxpayers who fall under the higher tax bracket. In such case, an alternative can be transferring the residential property to a company as its rate of corporation tax for the year 2021 stands at 19%.

Things to know before transferring your residential property to a company

Initially, the suggestion of transferring the property to a company’s name looks like an easy escape. Nonetheless, do consider the following before doing so.

  • Payment of Stamp Duty: While transferring your property from private account to your company’s account, you would be required to pay 15% stamp duty based on the market valuation of the property (if the cost is more than £500,000)
  • Payment of Capital Gains: When it comes to disposing the property, the impact of tax on capital gain will come into the picture. As per current scenario, if a property is sold by the company, Capital Gain Tax (CGT) can extend upto 28% on the difference of price. For example – Suppose your property was purchased at £100,000 and it was later sold at £130,000, then you would be required to pay £8400 [30000 x 28%].

When you consider the above-mentioned costs, your savings via claiming mortgage interest would be completely wiped off.

To promote a clear understanding, let’s break it down into advantages and disadvantages.

Situations where buying a residential property under a company is an advantage

  • First hand acquisition: If you are looking forward to buy a new residential property, then doing it via company makes sense. You will be required to bear stamp duty cost, but then your mortgage interest will be eligible for deduction. If youare looking forward to transferring your existing property to a company, then you’ll probably be paying stamp duty twice for the same property.
  • Transfer from Partnership: There may have been case where you had acquired a property under partnership. So, this is the right time to transfer the same to a company. This will reduce your tax bracket.
  • Transfer of Buy-to-let Properties to children: When it comes to property inheritance, there will be complications and higher tax pressure when done from an individual’s account to another. Instead, transferring it via Family Investment Company makes it a recommended option.

Situations where buying a residential property under a company is a disadvantage

  • Rate of Mortgage: We are all aware of the fact that the rate of mortgage of individuals and companies are different. So, if the residential property is acquired via company on a mortgage, then rate of interest will be higher.
  • Liability: Transferring a property to a company will make it an asset for the company. In case the company is not able to perform and incurs losses, then even the property can come under the hammer.
  • Sale of property: You must also take into account the impact of sale. Selling a property under a company will add to company’s revenue. This will result in revenue generation for the company, hence, higher corporation tax.

So, as an individual, what should be your approach? The solution depends on your personal situation. Consider discussing the same in-person with an accountant for landlord in UK.