Newspaper article The Evening Standard (London, England)

Our First Business Trip; Homes & Property Lawyer Henry Stuart Answers Londoners' Queries

Newspaper article The Evening Standard (London, England)

Our First Business Trip; Homes & Property Lawyer Henry Stuart Answers Londoners' Queries

Article excerpt

Byline: HENRY STUART

I am a landlord letting out two properties. At present, the rental my wife and I receive from these properties is added to our income tax assessment and the profit is taxed at 40 per cent. With the changes announced in the Budget for small businesses (first pound sterling10,000 profits exempt from tax), would it be more tax-efficient to incorporate ourselves as a small business and pay corporation tax at 19 per cent on profits above pound sterling10,000?

Three taxes need to be considered by an individual investing in property.

These are capital gains tax, inheritance tax and income tax. When choosing how to make an investment, the impact of these taxes must be weighed against the purpose of making the investment.

In brief, individuals who die owning assets valued in excess of pound sterling250,000 will pay inheritance tax. An asset sold with a chargeable gain will pay capital gains tax: allowances for individuals are more advantageous than for companies.

Income tax will be paid on income arising in the UK after deduction of allowable expenses.

If you own the shares in a UK company, you will pay inheritance tax on the value of the shares (ie. the value of the properties). If the company sells, it will pay capital gains tax. The company will pay income tax. If you transfer to a company, you will have the costs of the transfers and the ongoing costs of running the company.

The company is a separate entity and will itself bear tax. When value is taken out of the company, it will be taxed in the hands of the recipient - in effect double taxation.

The appropriate structure for property ownership must reflect all the circumstances of the investor, but corporate ownership for UK resident individuals has both tax and cost implications.

It will depend on the level of income and profit as to which structure would be better.

My partner and I own the leasehold on a property. …

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