Originally written by Natasha Heron on Small Business
When purchasing an investment property one of the first considerations is whether it should be held personally or within a company wrapper.
A company is a separate legal identity to its owners; therefore, the asset belongs to the company rather than the shareholders or directors. Rental receipts and proceeds from subsequent disposals belong to the company and are subject to corporation tax at the current rate is 19 per cent. Profits can be extracted via salary or dividends both of which are subject to income tax and national insurance at varying rates depending on the level of income received by an individual within a tax year.
The key question to ask is “What is your intention for the profits?”
>See also: Landlord tax relief changes: Why property owners should consider a limited company
If the intention is to reinvest proceeds or to build up cash reserves, a corporate wrapper may be preferential because if the profits are not required to be extracted then they are not subject to income tax. If the property is held in personal names those profits are taxed on receipt.
Individuals used to be able to claim interest paid on buy-to-let mortgages as a
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