Company Setup & Trusts
From a purely financial perspective, there are a few reasons why you might want to hold property as a Company or Trust rather than in your personal name.
- Tax treatment of profits
- Tax treatment of mortgage interest in some countries
- Opportunities to mitigate inheritance tax
- Mortgage availability
- Dividend taxation when you take the money out
The biggest trend that’s taken place during our time in property is the huge and sudden shift to people buying properties within Companies or Trusts.
Before we look at this, a quick disclaimer: This is not tax advice. We’re just sharing general information, not making any kind of recommendation If you want expert tax advice, I recommend you book a consultation with our tax partner. They only work with property investors, and have advised hundreds of people about whether they should invest through a company, a trust or not. Each country have their own rules in this respect and therefore important to speak to a qualified professional in the country in which you are purchasing property.
Tax treatment of profits
If you own a property in your own name, the profits you make from renting it out will be added to your other earnings (such as from your job) and taxed as income tax. But if instead you hold it within a company, the profits will be liable for Corporation Tax instead. The rate of Corporation Tax tends to be around half of the higher rate of income tax – which is an enormous saving.
Tax treatment of mortgage interest
Mortgage interest is an allowable expense in some countries but not in others for individual property investors but it is an allowable expense for companies that hold property. If you are planning to purchase multiple properties to create a diversified property portfolio than it’s best to explore the option of buying through a limited company or trust.
Opportunities to mitigate inheritance tax
Property held within a company gives more options when it comes to planning for Inheritance Tax. One should take advice from a specialist tax advisor if passing properties on s a legacy forms an important part of your life plans. You can make use of trust structures, different types of shares, and all kinds of clever methods that you wouldn’t otherwise have access to.
So if there’s an income tax advantage, a mortgage treatment advantage and potentially an Inheritance Tax advantage, why wouldn’t you invest through a limited company?
- Mortgage availability
- Dividend taxation when you take out money from the company
- Extra costs to set up the company/trust and ongoing maintenance charges
This is a complex area but one that can save you a lot of money in the long term if you are looking to purchase multiple properties. It’s always best to speak to a professional in order to explore all the options in advance of your property purchase. It’s also advisable to speak to a professional in the country where you are purchasing as they will understand the current laws of that country.
Contact us for more information or for an introduction to a professional in the appropriate country.
