Property Business Incorporation
Posted on 11th August 2022 at 16:23
Why Incorporate a Property Business?
A rental property business can be operated through a limited company. Below are the reasons to incorporate a Property Business versus a personally owned rental property business:
• Tax relief for mortgage interest/finance costs is fully deductible in a company
• The company is subject to 19% tax rate on profits, but for higher/additional Tax rate payers with personal businesses, the tax rates are 40/45% respectively
• Company flexibility allows profits to be drawn to allow effective management of tax liabilities. Thus, more money is left for reinvesting or to pay down lending quicker
• Regarding inheritance tax planning, companies are generally better as shares are a more flexible planning tool than personally owned property
Contact a member of our team today to discuss whether a Property Business Incorporation could benefit you.
Revenue vs Capital Expenditure:
If you have a rental property business or you are considering setting up one, it will be important to understand which expenses can be taken directly to reduce your taxable profit or carry forward as a capital cost added to the value of the property.
With capital expenditure, the amounts can be carried forward into the following years until the disposal of the asset and will be deducted from the gain.
Let us take an example of property disposal. Costs that are incurred to make an improvement in the property, such as extensions, will be classed as capital. If you have to install a kitchen, the cost of implementing the kitchen will also be considered as capital as the property has to be in a liveable condition. These costs will reduce your capital gains when the property is sold because these will be considered as allowable expenses.
Revenue expenditure is recorded at the time they are incurred (current period or within a year) and can’t be carried forward into the following years, unlike capital. Below is our continuation of the property disposal example:
If there are repairs, maintenance, finance costs (such as mortgages), insurance and other costs when you are either letting or living in the property, these costs will be classed as revenue and will be deducted by your income to reduce your taxable profit.
The following link provide more information and elaborate examples:
Landlord Tax Guide: What are allowable expenses?
If you have missed to read our Landlord Tax Guide, please follow the link below to review a detailed list with Revenue Expenses:
Chart Accountancy can help.
Taxation for landlords can be complex. If you need help or advice on any aspects of tax, please get in touch with us today to find out how we can help you with your lettings business accounts.
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