Should I hold a buy-to-let or rental property personally or in a company?

Subscribers see: Buy-to-let ownership: personal v company? for a more conclusive version of this guide which includes worked case studies for profit extraction, Capital Gains Tax (CGT) reliefs, tax planning, share planning, trusts, Inheritance Tax (IHT) issues for non-doms and much much more.

This is a freeview 'At a glance' guide illustrating some key differences between holding rental property personally or via a limited company.

At a glance

At a glance: some of the differences between ownership as an individual or via a company for tax:

Held personally

Held through company

Profits

Profits

 

 

Occupation by business owner

Expenses

  • Restriction on tax relief for own use

Occupation by company owner

PAYE

Tax on disposal of the property: UK resident

  • Capital Gains Tax (CGT) on gains deducting any available Annual Exemption.
  • Higher rate of tax for residential gains. Lower rates of CGT non-residential for basic rate payers

Tax on disposal of the property: UK resident

  • Gains subject to Corporation Tax
  • An indexation allowance is given for property owned on or before 31 December 2017, to that date. 
  • Payment date is subject to ordinary Corporation Tax payment deadlines.

Tax on disposal of the property: non-UK resident

  • A non-UK resident is subject to CGT when disposing of an interest in UK property.
  • Dates as opposite
  • Special reporting rules

See Non-resident CGT: UK property

Tax on disposal of the property: non-UK resident

  • Between 5 April 2015 and April 2019, a non-UK resident company only subject to CGT when disposing of an interest in UK residential property.
  • From 1 April 2019 non-resident companies are subject to Corporation Tax on all UK immovable property gains
  • See Non-resident CGT: UK residential property
  • From 6 April 2019, the disposal of shares in property-rich companies, by non-resident shareholders with 25% or more interest (with connected parties) is subject to CGT.

ATED

  • Between April 2013 and April 2019 gains from property subject to the ATED regime (see below) were subject to ATED Capital Gains Tax.
  • ATED CGT is abolished from April 2019.

See ATED CGT: UK residential property & non-natural persons

 

Extraction of funds

Income 

  • In general profits and gains are available for the individual as they are fully taxed as they arise.

Capital

  • A disposal of a property at a profit will trigger a capital gain.
  • A disposal is treated in most cases as being made at market value.

 Incorporation

  • Incorporation will trigger a capital disposal but it may be possible to holdover any gains.

See Buy-to-let: incorporation

 

Extraction of funds from the company

Profit extraction

Income Tax

  • Potential double tax charge when profits are extracted as dividends.

Dividends

  • Individual shareholders may have unused dividend allowances.
  • Tax above the allowance is taxed at dividend tax rates.
  • Dividends received by pensions and ISAs are unaffected.

See Dividend tax 

Capital Gains Tax

  • Profits may be extracted as a capital distribution on striking off or winding up. 
  • Subject to anti-avoidance rules from 6 April 2016.

See Transactions in Securities and TAAR: Distributions on winding up (anti-phoenixing rules)

Ownership

  • The maximum number of legal owners of land and property is restricted to five.
  • Owners need to decide whether to hold property as joint tenants or tenants in common and also to consider the effect on joint tenants of changing beneficial interests in the property.

See Joint Property: legal v beneficial ownership

Ownership

Losses

  • There is generally no 'sideways' loss relief for property losses. Losses may be offset against other profits from the same property business or carried forward.

See Property profits and losses: adviser guide

Losses

  • These cannot be offset against the owner's other income.
  • Losses can be offset against total company profits of the current or future years, as long as the rental business continues.

See Losses

Annual Tax on Enveloped Dwellings (ATED)

  • No exposure to ATED charge.

Annual Tax on Enveloped Dwellings (ATED)

  • The ATED regime applies to high-value residential properties held by non-natural persons e.g. a company, subject to exemption when the property is let on a commercial basis.
  • An ATED return must be filed annually by 30th April for the year commencing 1 April previous, to claim any exemption or relief that may be available.
  • The ATED charge becomes payable if the letting business ceases, see Annual Tax on Enveloped Dwellings (ATED)

Stamp Duty Land Tax (SDLT)

  • Charged to the buyer, on purchase.
  • First Time buyer's relief or other reliefs may apply: this is an area where the rates of tax frequently change see Stamp Duty Land Tax rates and reliefs
  • A 3% premium applies on the purchase of an additional residential property.

See SDLT & residential property: higher rate

Land and Building Transaction Tax (LBTT)

  • From 1 April 2015 properties in Scotland are subject to LBTT instead of SDLT.  
  • A 6% Additional Dwelling Supplement (ADS) applies on the purchase of an additional residential property and on the purchase of a residential proeprty by a company.

See LBTT: Additional Dwelling Supplement

Land Transaction Tax (LTT)

  • From 1 April 2018 Welsh Land Transaction Tax (LTT) replaces Stamp Duty Land Tax (SDLT) in Wales.
  • A 4% premium applies on the purchase of an additional residential property.

See Welsh Land Transaction Tax.

Stamp Duty Land Tax (SDLT)

  • Charged on purchase from or gift by an individual to their connected company. 
  • From April 2016 a 3% premium applies on the purchase of residential property by companies.
  • A 15% SDLT charge can arise on residential property purchases made by non-natural persons, which can include companies.

See SDLT & residential property.

See Stamp Duty Land Tax rates and reliefs.

Since 1 April 2015 properties in Scotland are subject to LBTT instead of SDLT.

See LBTT: Additional Dwelling Supplement

From 1 April 2018 Welsh Land Transaction Tax (LTT) replaces Stamp Duty Land Tax (SDLT) in Wales, see  Welsh Land Transaction Tax.

Stamp Duty

  • Applies at a rate of 0.5% on share acquisitions of £1,000 or higher.

 Inheritance Tax (IHT)

  • IHT Business Property Relief (BPR) is unlikely to apply to let property: it is an investment asset.
  • Beneficiaries of an estate on death receive the property at market value: no extra CGT for them to pay on an immediate post-death sale.

IHT and non-UK domiciled individuals

  • IHT only applies to UK situated assets for a non-UK domiciled individual.
  • From April 2017, IHT extends to non-UK domiciled individuals (or their trusts) where UK residential property is held indirectly through a foreign company or partnership.
  • From 6 April 2025 it is proposed that reforms apply to the Non-dom tax regime 

See Property Letting CGT and IHT issues.

 

Inheritance Tax (IHT)

  • IHT Business Property Relief (BPR) will not apply to shares unless the company has wholly or mainly non-investment activities.

See IHT Business Property Relief

  • On death, no market value uplift of property: MV uplift for share value.

Non-UK domiciled owners

  • From April 2017 IHT extends to non-UK domiciled individuals (or their trusts) where UK residential property is held indirectly through a foreign company or partnership.
  • From 6 April 2025 it is proposed that reforms apply to the Non-dom tax regime 

See Non-domicile status & tax

De-enveloping

N/A

De-enveloping

  • The transfer of a residential property from a company back to its shareholders will have tax consequences.
  • A range of different options are available, see De-enveloping property

 

VAT

  • Residential lets are always exempt, however commercial letting can be standard rated if the owner has Opted to Tax the building.
  • If the property is let as Holiday accommodation, then the income generated is standard rated and the owner will have to charge VAT if they are registered.

See also VAT: partial exemption

VAT

  • Income from property letting is exempt from VAT with the exception of commercial letting which is standard rated if the company has Opted to Tax the building.
  • The letting of Holiday accommodation is a standard rated activity.

See VAT: Land and property at a glance 

Converting business into a trade

Converting business into a trade

 

Buy-to-let: use as an investment company/pension/alternative to trust

A property investment company can be a tax-efficient vehicle see: Buy-to-let ownership: personal v company? (subscribers) the detailed version of this guide, see also:

New property business

See Property Profits and Losses and Joint Property for further details.

Property Letting: CGT and IHT issues

See:

Case study

Step-by-step comparison of tax between personal ownership and a company tracking tax reliefs and liabilities on incorporation and then considering different methods of profit extraction and following by sale or transfer for IHT.

See Buy-to-let ownership: personal v company? for the detailed version of this guide


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