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This is a freeview 'At a glance' guide illustrating some key differences between holding rental property personally or via a company.

Should I hold a buy-to-let or rental property personally or in a company?

Subscribers see: Buy-to-let ownership: personal v company? for a more conclusive version of this guide which includes worked case studies for profit extraction, Capital Gains Tax reliefs, tax planning, share planning, trusts, Inheritance Tax (IHT) issues for non-doms and much much more.

At a glance

At a glance: some of the differences between ownership as an individual or via a company for tax:

Held personally

Held through company

Profits

Profits

  • Subject to Corporation Tax
  • Calculated on an accruals basis.
  • No fixed rate deductions/reliefs
  • No Capital Allowances for capital items used in dwelling houses.
  • No restriction on tax relief for finance costs
  • Furnished Holiday Letting (FHL) special tax treatment does not apply to companies

 

 

 Occupation by company owner

Expenses

  • Potential restriction on tax relief on costs of expenses incurred when the property is owner-occupied if the property is also commercially let.

Occupation by company owner

PAYE

Tax on disposal of the property: UK resident

  • Residential subject to Capital Gains Tax (CGT) after deducting any available Annual Exemption.
  • The Lower rates of CGT do not apply to the disposal of residential property.

Tax on disposal of the property: UK resident

  • Gains subject to Corporation Tax
  • An indexation allowance is given for property owned on or before 31 December 2017. 
  • Payment date is subject to ordinary Corporation Tax payment deadlines.

Tax on disposal of the property: non-UK resident

Tax on disposal of the property: non-UK resident

  • Between 5 April 2015 and April 2019, a non-UK resident company is subject to CGT when disposing of an interest in UK residential property.
  • From 1 April 2019 non-resident companies are subject to Corporation Tax on UK immovable property gains
  • See Non-resident CGT: UK residential property
  • From 6 April 2019, the disposal of shares in property-rich companies, by non-resident shareholders with 25% or more (with connected parties) interest will be subject to CGT.

ATED

 

Extraction of funds

Income 

  • In general profits and gains are available for the individual as they are fully taxed as they arise.

Capital

  • A disposal of a property at a profit will trigger a capital gain.
  • A disposal is treated in most cases at market value.

 Incorporation

 

Extraction of funds from the company

Profit extraction

Income Tax

  • Potential double tax charge when profits are extracted as dividends.

Dividends

  • Individual shareholders may have unused dividend allowances.
  • Tax above the allowance is on three dividend tax bands: 7.5%, 32.5% and 38.1%, Dividend rates increase by 1.25% per band from 6 April 2022
  • Tax credit abolished.
  • Dividends received by pensions and ISAs are unaffected.

See Dividend tax 

Capital Gains Tax

  • Profits may be extracted as a capital distribution on striking off or winding up. 
  • Subject to anti-avoidance rules from 6 April 2016.
  • see Transactions in Securities

Ownership

  • The maximum number of legal owners of land and property is restricted to five.
  • Owners need to decide whether to hold property as Joint tenants or Tenants in Common and also to consider the effect on Joint Tenants of changing beneficial interests in the property.
  • See Joint Property: legal v beneficial ownership

Ownership

Losses

Losses

  • These cannot be offset against the owner's other income.
  • Losses can be offset against total company profits of the current or future years, as long as the rental business continues.
  • See Losses

Annual Tax on Enveloped Dwellings (ATED)

  • No exposure to ATED charge.

Annual Tax on Enveloped Dwellings (ATED)

  • The ATED regime applies to high-value residential properties held by non-natural persons e.g. a company, subject to exemption when the property is let on a commercial basis. Filing is required to claim any relief that may be available.
  • The ATED charge is payable if the letting business ceases see Annual Tax on Enveloped Dwellings (ATED)

Stamp Duty Land Tax (SDLT)

Land and Building Transaction Tax (LBTT)

From 1 April 2018 Welsh Land Transaction Tax (LTT) replaces Stamp Duty Land Tax (SDLT) in Wales, see Welsh Land Transaction Tax.

Stamp Duty Land Tax (SDLT)

From 1 April 2015 properties in Scotland are subject to LBTT instead of SDLT.

See LBTT: Additional Dwelling Supplement

From 1 April 2018 Welsh Land Transaction Tax (LTT) replaces Stamp Duty Land Tax (SDLT) in Wales, see  Welsh Land Transaction Tax.

Stamp Duty

    • Applies at a rate of 0.5% on share acquisitions of £1,000 or higher.

 Inheritance Tax (IHT)

  • IHT Business Property Relief (BPR) is unlikely to apply to let property: it is an investment asset.
  • Beneficiaries of the estate on death receive the property at market value: no extra CGT for them to pay on an immediate post-death sale.

IHT and non-UK domiciled individuals

  • IHT only applies to UK situated assets for a non-UK domiciled individual.
  • From April 2017, IHT extends to non-UK domiciled individuals (or their trusts) where UK residential property is held indirectly through a foreign company or partnership.
  • see Property Letting CGT and IHT issues.

 

Inheritance Tax (IHT)

  • IHT Business Property Relief (BPR) will not apply to shares unless the company has significant non-investment activities.
  • See IHT Business Property Relief
  • On death, a shareholder's shares will benefit from an uplift in market value in the hands of the beneficiaries. Property held in a company receives no similar uplift.

Non-UK domiciled owners

  • From April 2017 IHT extends to non-UK domiciled individuals (or their trusts) where UK residential property is held indirectly through a foreign company or partnership.
  • See Non-domicile status & tax

De-enveloping

N/A

De-enveloping

  • The transfer of a residential property from a company back to its shareholders will have tax consequences.
  • A range of different options are available, see De-enveloping

 

VAT

  • Residential lets are always exempt, however commercial letting can be standard rated if the owner has Opted to Tax.
  • If the property qualifies as a Furnished Holiday Let, then the income generated is standard rated and the owner will have to charge VAT if they are registered.
  • See also VAT: partial exemption

VAT

Converting business into a trade

  • See Furnished Holiday Letting (FHL) for more detail about generating income from property as a Furnished Holiday Let.
  • A FHL qualifies as a business asset for CGT relief including roll-over relief.

Converting business into a trade

 

Buy-to-let: use as an investment company/pension/alternative to trust

A property investment company can be a tax-efficient vehicle see: Buy-to-let ownership: personal v company? (subscribers) the detailed version of this guide, see also:

New property business

See Property Profits and Losses and Joint Property for further details.

Property Letting: CGT and IHT issues

See:

Case study

Case study for 2015-16, 2016-17, 2017-18, 2018-19, 2019-20 and 2020-21.

Step-by-step comparison of tax between personal ownership and a company tracking tax reliefs and liabilities on incorporation and then considering different methods of profit extraction and following by sale or transfer for IHT.

See Buy-to-let ownership: personal v company? for the detailed version of this guide


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