Landlords Tax Services Ltd - The complete tax service for the commercial property landlord

Frequently Asked Questions

• Should I be an individual landlord, or should I hold my portfolio in a company?
• I am thinking of arranging for my company to sell its commercial investment property. What tax reliefs are available?
• If I form an off-shore company which then holds property and rents it out, will I avoid tax.
• What tax does a non-resident company pay when it sells an investment property?

Should I be an individual landlord, or should I hold my portfolio in a company?

It depends. It depends on your personal situation, and your intentions and aspirations. A company used as a vehicle for a property portfolio can prove to be beneficial, but often it is not. Occasionally it is disastrous and results in vastly higher tax bills than an individual would have suffered. A company pays only 19% tax on its profits up to £300,000. But if you want to take the money out of the company how much tax are you going to pay. You must also consider whether or not National Insurance will be due - as an individual no NI is payable on investment income.

Then you must consider Capital Gains Tax. If you have lived in a house (as your principal private residence) at any time there are substantial reliefs and exemptions. Even if you have not there are some reliefs including taper relief which reduces the effective rate of tax. Companies do not get taper relief or the other reliefs. Instead they get the much less generous indexation allowance. Then, when your company has sold the property and paid tax on the gain are you going to have to pay tax again on the same income to get the proceeds out of the company?

This is a very complex area. There is no right answer. You must take advice specific to your personal needs and intentions. And then hope these don't change.

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I am thinking of arranging for my company to sell its commercial investment property. What tax reliefs are available?

Your company will pay Corporation Tax on the gain (the difference between the selling price - adjusted for incidental costs - and the buying price - also adjusted for incidental costs).

The buying price (for the purposes of this calculation) will be artificially adjusted upward (reducing the gain) by the indexation allowance which seeks to adjust the buying price by the inflation that has occurred over the period of ownership.

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If I form an off-shore company which then holds property and rents it out, will I avoid tax.

The answer is maybe - but not for long. Tax is payable on income arising in the UK. If the company is treated as a UK company then it will pay corporation tax on its profit. If it is not a UK company then it will have tax deducted from rents by either your agent or tenant. If it is a Controlled Foreign Company you may be assessed personally as well. This is a very complex area and one where you must take advice specific to your personal circumstances. Don't be misled into thinking this is an easy way to save tax. It isn't, and it can be very expensive to administer. If you are UK resident and try to use an offshore company as a smokescreen and hope no-one finds out who owns it, then you will be committing a criminal offence.

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What tax does a non-resident company pay when it sells an investment property?

A non-resident company is exempt from tax on its chargeable gains; however a Controlled Foreign Company (a foreign company controlled from the UK or by UK residents) may generate a tax liability for its UK "participants".

Many thousands of pages have been written on the subject of taxation. It is therefore impossible to give anything other than the roughest outline in a document such as this. There are many exceptions and rules other than those described above. You should not rely on the foregoing. You should always take professional advice specific to your circumstances. We would be pleased to advise our clients upon request.