Key Post Is there any merit in setting up a company to invest in property?

clarecelt

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Hi,
I am currently looking at investing in property and hoping to buy and appartment/house in Galway. I am also looking at a property with some commercial potential but needs some work.

What I am wondering if it is worthwhile purchasing a property via a Ltd company and if there are any savings/ tax incentives that would make this worthwhile ?

Thanks
 
Are you intending to do it up and sell it on or rent it out.

The reason people generally buy property for investment out side a company is that rental income is taxable at 40% in a company and when it comes time to sell the asset the company has to pay CGT and the the share holder has to pay CGT to get the funds from the company.

With the 7 year exemption there may be an exemption of the gain in the property in both cases.
 
Thanks Brendan,
My intention is to buy a house with commercial potential. This property needs a lot of work and thus wondering if it is worth buying through a company if there are any benefits with respect to:
reading through your recommended post I am still not sure if it is a viable solution but want to explore it now before I delve into purchasing.

1. Claiming cost of renovation
2. Claiming any cost of management of property
3. Renting out property
4. Profits
5. Eventual Sale or pass on to family
6. any benefits of putting rent into pension fund
7. Any benefits as regards leveraging property as regards remortgaging with bank.

Unfortunately dont have any other information...I did a quick seach and came across this link but still not seeing enough data to promote the idea of company purchasing property.

Dont know this company but hopefully someone can come with pros and cons following the workshop next week.

Thanks again Brendan...
 
The allowable deductions are the same for income tax and corporation tax. Renovating a property prior to letting is not allowed for either, it's a capital gains tax deduction.

I'd be interested in hearing what they have to say about the subject if anyone wants to post some of the relevant points.

If clients have an existing business and it is generating profits then there is merit in considering transferring a hq type building into a company pay back loan at 12.5% instead of 52%, the same can apply to other property but not to the same extent.
 
I have looked again at the Key Post. I had not realised it was so old and so poorly laid out.

But the summary point is that it is not a good idea to set up a company to buy an investment property.

The primary reason is that any capital gain you make will be subject to CGT twice - once when the company sells the property and once more when you sell or liquidate the company to get your hands on the cash.


There are many other reasons

  • Companies are expensive and hassle to administer, account for and audit.
  • Profits made by the company will be subject to Corporation Tax and then to income tax when you eventually pay them out to yourself
  • If you own the property yourself, you can use it as security when you build up equity in it.
  • Any legal action such as contracts, leases, suing for unpaid rent, is much easier as an individual than as a company.
  • When you go to sell the property eventually, buyers will want to buy a property and not the company.
I have heard some accountants saying that people need to take professional advice to see which is the best option for their particular circumstances, but I have yet to see a case where the particular circumstances of a case have justified buying a property through a company.


There are many posts on askaboutmoney where people say "I own a property through a company - how do I get the profits out tax efficiently?"
 

But that is not the question which is being asked here?

Are there any merits in setting up a company to invest in property?

The answer seems to be a clear No to me.

Brendan
 
Thanks Brendan,
As currently in the process of purchasing a property I figured that it was no harm to check this possibility out and explore the pros and cons. As you mention there may be merits for some businesses to purchase through company structure but not for me.

Saying that hopefully we may receive some feedback from seminar participants who may be keeping an eye on this forum

Thank you Brendan
 
Are there any merits in setting up a company to invest in property?

I looked at this years ago and there was no merit at that time. I only know one person who help property that way. But he was into property and all sorts in a big way. If it made sense, lots of people would do it and there would have been articles and discussions about it.
 
Hi dublin

As I said only a few posts up...

But that is not the question which is being asked here?

Are there any merits in setting up a company to invest in property?

The answer seems to be a clear No to me.

Brendan
 
I totally agree with Brendan on the answer he has given to the question you have posed. A definite NO
 
Buying through a company

Hi All,

Have not done this before so forgive me and correct me if am not adhering to the correct procedure.

But this post interested me as I have been considering buying a residential rental property through my limited company.

I have done some figures but from this thread I would need to look at them again. For one thing I thought that the corporation tax on rental income is currently 25%. Is the 40% rate quoted correct ?
 
A company controlled by 5 or fewer people has to pay a close company surcharge of 20% of the undistributed rental income so that effectively makes the rate 40%.
 
Thanks Joe-90.
A closed company is what I have. The information I have is that unearned income such as rent or investments is subject to tax at 25%. The surcharge of 20% applies to all undistributed income be it from profits from a trade or rent.

If the rent from the property was all paid as wages it will be taxed as income and would not be subject to levy or corporation tax; is this correct ??