Buy investment property though limited company?

B

Bob5666

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Think this is well covered in other posts but I’m looking for an up to date opinion on the matter
I’m looking to buy an investment property for 1 million I’m paye worker going to put a deposit of 300000 towards the property. I’m aware that it’s not very tax efficient to use a limited company ( property investment company only ) to buy the property and then pay tax on both company and personal income and capital gains issues on selling it .
My thinking is it not better for the a limited company to buy the property from an ability to pay the mortgage on the property with the lower tax rates for limited company profits vs personal tax ? And letting the remainder of the after mortgage repayments sit in the company as a cash buffer. I’ve no interest in taking any money out of the investment until the mortgage is paid 20-25 years time.
(The reason I’m thinking of this is to reduce the risk of not being fit to meet monthly repayments by having more cash flow for the investment property )
 
OK

If you are concerned about the risk of being unable to meet the repayments, then you probably should be avoiding the investment.

There is a cash-flow advantage, but the tax cost is horrific and not really worth it.

I am all for reducing risk, but the best way to do that is not to borrow to invest. Making a terribly inefficient investment is not the way to go.

If you are borrowing to invest in property, you should have sufficient income outside the rent to allow you to meet the repayments. If you don't have the additional income, then you should not be making the investment.

Brendan
 
Brendan Burgess said:
OK

If you are concerned about the risk of being unable to meet the repayments, then you probably should be avoiding the investment.

There is a cash-flow advantage, but the tax cost is horrific and not really worth it.

I am all for reducing risk, but the best way to do that is not to borrow to invest. Making a terribly inefficient investment is not the way to go.

If you are borrowing to invest in property, you should have sufficient income outside the rent to allow you to meet the repayments. If you don't have the additional income, then you should not be making the investment.

Brendan
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Hi Brendan not
Brendan Burgess said:
OK

If you are concerned about the risk of being unable to meet the repayments, then you probably should be avoiding the investment.

There is a cash-flow advantage, but the tax cost is horrific and not really worth it.

I am all for reducing risk, but the best way to do that is not to borrow to invest. Making a terribly inefficient investment is not the way to go.

If you are borrowing to invest in property, you should have sufficient income outside the rent to allow you to meet the repayments. If you don't have the additional income, then you should not be making the investment.

Brendan
Click to expand...
Hi Breadan thanks for the info
Was just exploring the idea of any positives to going with a limited company I understand the overriding advice is buy it personally but I am curious of any pros with going the limited company route if you never plan on selling the property so the capital gains taxes is not an issue . (Obviously I’ll be speaking to my accountant on the issue just curious on other peoples opinions on the matter or people’s experience with the matter)
 
Bob5666 said:
Obviously I’ll be speaking to my accountant
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You would want to be a bit careful on this.

I have seen accountants say "Corporation Tax is lower than your marginal rate of tax so this is a good idea."

Talk away to your accountant, but no matter what she says, it's a bad idea.

Brendan
 
RedOnion said:
It is indeed. Have you found a single case where it made sense?

Have you factored the Close Company Surcharge into your after tax and cashflow analysis?
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Hi red onion thanks for the reply from what I see is the overriding advice is buy personally from what I make out that limited company pays taxes at 20% surcharge +12.5% = 32.5%
Personal tax on rental after prsi and usc is added be 52%
And to take the money out of the a limited company you’d be crippled with tax and capital gains.
My point is I’m never going to sell the property and will only be looking to take the money from the investment in another 25 -30 but am I right in what your saying to take money out of the company it be first taxed at about 32.5% within the company and then I’d be further taxed at 52% than would be a lot of tax in fairness
 
Any chance that some kind soul could do a comparative numeric analysis from beginning to end?
 
Bob5666 said:
My point is I’m never going to sell the property
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Hi Bob

Unless you are 90, it's unlikely that you can say this with confidence.

People's financial plans should and do change.

And even if yours don't, you will die. And whoever inherits your property in a company will face the nightmare of getting it out.

Brendan
 
Bob5666 said:
Well then that that put bed not much point then so
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Where does rent come into this - the asset is owned by the company - no rent is payable?

I think it would be great if someone has the time and ability to do an beginning to end comparison?
 
Apologies - I misread the OP!

What I was wondering is where the property is to be used by the business for the business, etc., what they is the best approach? This is what I'd like to see the beginning to end numbers for! [Apologies again for my errant posts, plural!]
 
There are hundreds of different scenarios, so 1 model doesn't always work.

For example, is there cash already sitting in the company, and which tax would have to be paid to take it out of the company? Or are you borrowing in either scenario?

And then there are all the variables of assumptions around capital gains, and exit strategies.

It's probably clearer to start a separate thread on the specific question, outline the assumptions you want to apply, and in a general sense some of the tax implications can be worked out.
 
Hello
just so I can put this issue to bed in my head (Ltd company vs individual ownership) I understand
  • corporate tax for non- trading income is 25%
  • closed company surcharge if applicable is 15-20%
Are there further taxes (dividend withholding taxes) applicable to distributions to individuals? When I receive the funds I am taxed at the marginal rate (i.e. 52%) less a credit for the DWT (20%)?

Thanks

Eoghan
 
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