Owning property through a limited company
Corporation Tax
Corporation tax is charged on rental profits arising from property businesses operated via a limited company. Where profits will broadly be rental incomes received less any revenue expenses incurred in the period.
Note that costs incurred on capital improvement of the property are not deductible against rents. They will be deducted off sales proceeds to work out the gain when the company sells the property. This distinction between revenue and capital is important and is a common taxpayer mistake when calculating their own taxes.
Note that in contrast to property owned personally, the interest payable on mortgages on investment properties held by companies is a valid tax deductible expense, thus can be taken into account to reduce the profits chargeable to corporation tax. This is one benefit that can make ownership of property via a corporate entity a more tax efficient option, as well as the flexibility that a corporate entity offers.
Profits from property businesses are taxed at normal corporation tax rates.
The company will be required to file annual accounts and Corporation Tax returns.
Capital Gains
Corporation Tax is also payable on capital gains arising on the sale or transfer of property held by a limited company.
Gains are calculated as sales proceeds (or market value if the transfer is for zero consideration) less original purchase price, less the cost of capital improvements (for example and extension / loft conversion).
Such gains will be reported on the Corporation Tax return.
Stamp Duty Land Tax
Residential Stamp Duty Land Tax (“SDLT”) is chargeable on the value of the property at the following rates (if the property is valued at more than £40,000). If the property is valued at less than £40,000 no stamp duty is payable.
Note that companies will always pay the additional 3% SDLT (which is reflected in the rates in figure 1.) regardless of the number of properties owned. If the entity or any of its 50% shareholders are non UK resident, a further 2% SDLT is payable on each band.
Figure 1
Multiple Dwellings Relief
There is a relief available for the purchase of two or more dwellings called multiple dwellings relief. This is a complex relief to calculate, so if you feel it may be applicable to a transaction that you are undertaking please contact us.
Annual Tax on Enveloped Dwellings (“ATED”)
ATED is an annual tax that is payable (mainly by companies) that own residential properties valued at more than £500,000 (from 2016), unless one of the reliefs or exemptions applies.
Returns must be filed annually by 30 April.
Relief is available for several reasons, some of the most common of which include; if the property is let to a third party on a commercial basis, being developed for resale, is held as stock by a property trader for resale, is owned by a registered provider of social housing.
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If you need guidance surrounding the taxation of or filing requirements for your property company, please get in touch to start your journey with us