First published 27th March 2017; Updated 15th November 2018

Holding your property investments through a company still seems attractive for many – but there are serious pitfalls and it may not be appropriate for very many people at all.

The headline advantages are

  • ‍The restriction on tax relief on mortgage interest does not apply
  • The profits are only taxed at 19%
  • And of course there are some other lesser advantages perceived by some owners.

However there are still some major disadvantages to weigh against any perceived benefits

  • ‍If you transfer an existing portfolio into a company you are making a disposal and may have a lot of Capital Gains Tax to pay.
  • If you transfer an existing portfolio into a company you may have a lot of Stamp duty Land Tax to pay.
  • While the company will pay tax on the profit at 19% you will have to pay more tax when you take a dividend in excess of £5,000. (7.5%/ 32.5% / 38.1%). If you take a salary the company tax will be reduced but you will have to pay income tax and the company will have a liability for National Insurance – and you may too.
  • When the company sells a property it will pay tax at 19% on the gain, but if you want to take the money out of the company you have the same problem as in the paragraph above.
  • The annual running costs of the company can be quite substantial because of the obligation to prepare and file accounts and corporation Tax returns all in addition to your own tax returns.
  • The company structure is relatively inflexible. It can be very expensive to reverse incorporation.

Be very careful before you incorporate. There are so many variables not least of which is the uncertainty as to what changes there will be in legislation over the next five, ten or twenty years. There is no right answer. Only those that may be not quite so bad as others.