If you are an individual property investor in the UK, it is essential that you are aware of all of your options surrounding how you manage your investments so that you can ensure that you are paying as little tax as possible. An Individual property investor that is unaware of the rules is likely to be paying significantly more tax than may be necessary. Here is a short article on How to save tax as a Property Investor.
Limited Company management
One method that a UK property investor can do is manage their properties through their own limited company. They do this not only because they can benefit from the limited liability protection, but also because they can save a significant amount of tax through the comparatively favourable Corporation tax regime.
Due to the number of extra personal tax increases that have been levied by the government and the fall of corporation tax rates, managing your property investments through a limited company might be the best option for reducing your tax bill.
Examples of the increased restrictions on individual taxes include:
- Restrictions on the interest relief for residential landlords
- Consistently reducing the basic rate tax band between 2010 and 2016, pushing a large proportion of people into higher rate Income Tax band
- Introducing the High Income Child Benefit charge that claims back Child Benefit that is claimed by households where any individual has an income over £50,000
- Withdrawing personal allowances from individuals with an income over £100,000
- Introducing the ‘additional rate’ on income over £150,000
- Increasing almost all National Insurance rates
- Increasing the Capital Gains Tax rate to 28% for higher rate taxpayers (while this was later reduced to 20%, this does not include residential property)
These increases mean that base corporation tax rates are significantly lower than the 40% higher income tax and 45% additional tax rate bands that most property investors fall into. Not only can managing your property investments in a limited company offer better tax rates, but it can also offer better relief on both interest rates and losses.
Additional things to consider
While investing through your own limited company may be able to save you tax on your income, there are other factors that are important to take into account before you start. Managing your property investments through a limited company can be difficult if you will need easy access to your profits. This is because while Corporation tax rates may be lower than income tax rates, when it comes to extracting profits from the company, you may find some difficulty. An individual property investor is also able to enjoy a wider range of capital gains tax reliefs over a limited company’s.
Other than this, operating through a limited company can be more tax efficient for those who are looking to be more involved in the development side of property investment. It can also be more convenient for a property investor that is looking to the longer term and buying for their pension plan.
If you would like to learn more about the tax implication for a property investor, or if you would like to learn more about Accountant Chelsea and how we can help you and your business, you can visit our home page here for more information.