Corporation Tax Reduction: Safeguarding Property Wealth
Corporation tax is our focus as we collaborate with landlords who have incorporated their property businesses, managing their tax returns and providing strategic tax planning advice.
- Assert your full mortgage interest expenses.
Many higher-rate taxpayers opt for a limited company due to the full tax relief provided on mortgage interest, making it a primary incentive.
- Reduced concerns with HMRC.
We not only handle your UK tax return but also handle any inquiries from HMRC, ensuring a smooth and worry-free process. You can rely on us to protect your interests and streamline matters if HMRC initiates an investigation.
- Generate tax-free income for lifestyle, childcare, and education expenses.
By utilizing effective strategies, we can help a family with one child generate up to £18,500 in tax-free income annually. Leveraging the tax-free dividend allowance of £2,000 per person, along with your child’s individual tax allowance, consulting with a dedicated property tax adviser like us proves beneficial.
- Tailored assistance to guide you towards the right choice.
While we’re not a giant firm, we’re not tiny either. You’ll always have a dedicated property tax accountant with us. Our competitive fees ensure you get great value. Compare our services before deciding, even if you’ve consulted elsewhere.
Leveraging a limited company to enhance your property business and reduce corporation tax significantly.
Imagine having the opportunity to…
- The most favorable tax rate
Limited companies benefit from a favorable corporate tax rate of 19% on profits up to £50,000, starting from April 1, 2023. Profits within the range of £50,000 to £200,000 are subject to a tax rate of 26.5%, while any remaining profits are taxed at 25%, provided you have control over only one company. In comparison, personal tax rates begin at 20%, increase to 40%, and reach a top rate of 45%. Opting not to withdraw profits offers greater flexibility for limited companies. Following the payment of corporate tax, retained profits can be utilized to repay loans or serve as deposits for additional property investments.
- Minimize inheritance tax liability and safeguard your family's wealth.
By establishing a Family Investment Company (FIC) structure within a limited company, you can unlock strategic possibilities for inheritance tax planning. This configuration allows you to protect your property assets for future generations while maintaining full control and access to income during your lifetime. Delve into the specifics of our approach here.
- Get your corporate tax return completed.
For limited companies, fulfilling their obligations to HMRC for corporation tax returns and Companies House for account filings can be burdensome. Let us handle the entire process, ensuring accuracy and timely submission, while you concentrate on your business’s success and expansion.
- We manage your HMRC matters on your behalf.
From handling inquiries to conducting comprehensive investigations, we’ll be by your side, effectively communicating with tax authorities to ensure a seamless process.
- Maximize earnings, minimize taxation.
We will leverage our extensive experience in property tax and strategic business tax planning to identify and secure every available tax relief for your property business, even when dealing with intricate calculations and challenging paperwork. By minimizing your tax liabilities, you’ll have more resources to reinvest in expanding your portfolio.
Frequently Asked questions
If you're a higher rate taxpayer, owning property in your personal name can lead to income tax rates of 40% or more on your rental profits. However, holding property within a limited company subjects these profits to a much lower tax rate of 19%. This tax advantage allows you to retain savings within the company, which can be used for various purposes, including mortgage payments and future property acquisitions.
Full Tax Relief on Mortgage Interest:
Higher rate taxpayers who hold properties personally no longer receive full tax relief on mortgage interest; it's now limited to 20%. In contrast, when property is owned by a company, complete tax relief is still available, providing significant financial benefits.
Additional Corporation Tax Benefits for Limited Companies
Tax-Free Dividends:
Under the current regulations, you can withdraw up to £2,000 in tax-free dividends from your limited company, providing an additional source of income without incurring additional tax liabilities.
Interest Tax-Free Allowance:
As a higher rate taxpayer (assuming your total income is below £150,000), you may be eligible to receive up to £500 in interest tax-free from your company. This allowance applies to loans or deposits you've provided to facilitate property purchases, making it an attractive option for property investors seeking to optimize their financial strategies.
Considerations for Property Transfer:
Company Mortgage Costs:
- Assess additional expenses for repaying outstanding loans.
- Be aware of potentially higher finance charges when loans are held by limited companies.
Stamp Duty Implications:
- Determine if stamp duty is applicable, especially for properties valued over £40,000.
- Take into account the 3% higher rate surcharge and standard rate of Stamp Duty Land Tax (SDLT).
Capital Gains Tax Consideration:
- Evaluate the potential capital gains tax liability.
It is strongly recommended to seek professional advice before proceeding with a property transfer, as the combined impact of these factors can be substantial. While a transfer may seem costly, it's essential to compare it with the potential advantages of purchasing a property directly from the outset.
Funds Extraction Options for Shareholders/Directors of Property Companies
Dividend Distribution:
- Tax-Free Initial £2,000 (No Other Dividend Income Sources)
Salary Allocation:
- Must Be Justifiable for Corporate Tax Purposes
- Challenges with Letting Agent Property Management
Loan Repayment:
- Tax-Free Repayment of Company-Provided Loans
Interest on Loans or Money Owed:
- £1,000 Tax-Free for Basic Rate Taxpayers
- £500 Tax-Free for Higher Rate Taxpayers (Income up to £150,000)
Since April 2015, there has been a consistent rise in mortgages available to limited companies, with the number of lenders steadily increasing. Nevertheless, interest rates on mortgages for limited companies remain relatively higher when compared to individual borrowers. However, it's worth noting that some lenders have started offering the same interest rates for both.
A director's loan account (DLA) serves as a record for tracking all funds borrowed from or lent to your company. When the company borrows more from its director(s) than it lends to them, the account holds a positive balance. It is not recommended to borrow funds from your company, as it can result in potential tax liabilities.
If you have extended a loan to the company for purposes such as a deposit, you can apply a commercial interest rate on the loan. Higher-rate taxpayers can benefit from a tax-free allowance of £500, while basic-rate taxpayers can receive up to £1,000 annually.
Unlocking IHT and Corporation Tax Benefits through Limited Companies
Creating a limited company can offer advantages in terms of Inheritance Tax (IHT) and Corporation Tax. One effective strategy is establishing a Family Investment Company structure, which can help mitigate future IHT and Corporation Tax liabilities.
Two Classes of Shares: A and B
This involves setting up a company with two classes of shares: A and B shares. A shares grant you ownership with dividend and voting rights, while B shares hold entitlement to future growth. This allows you to transfer value while retaining control through directorship.
Shielding Growth from IHT and Corporation Tax
The growth on these investments is typically kept outside of an individual's estate for IHT purposes, and certain profits can be managed efficiently for Corporation Tax purposes. However, implementing such a tax structure can be intricate, and it's crucial to seek guidance from a knowledgeable and experienced professional adviser.
Get In Touch
For more details, please refer to the following resources or reach out to discuss your specific situation.
In some property purchase scenarios, lenders may require you to establish a limited company SPV, resulting in a 3% higher rate SDLT being applicable to your situation.
Starting on April 1, 2023, a new government proposal suggests that corporations will face a 19% tax rate on the initial £50,000 of profits, a 26.5% tax rate on the next £200,000, and a 25% tax rate on any remaining profits. In cases where companies are under common control, they will evenly distribute these profit bands among the associated companies.
In the present tax year, a shareholder within a limited company typically has the opportunity to receive up to £2,000 in dividends without incurring tax.
Set fees.
Transparent pricing.
No unexpected costs.
For landlords who manage their property businesses through a limited company, we determine our fees based on the size of your portfolio and the complexity of your financial situation. Be assured that our main priority is delivering exceptional value, precision, and efficiency.
Yearly financial reports and tax submissions.
If you own more than one property and are interested in our services for a limited company, feel fortunate because our fixed fee for annual accounts and tax compliance is only £575+VAT. Give us a call today!
- Establishing fee structures.
- Incorporate your standard limited company starting at just £85 + VAT.
- For a fee estimate, get in touch regarding Family Investment Company incorporation.
Our corporation tax service is tailored to your needs if...
Considering Incorporation: Navigating Corporation Tax
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Optimizing Real Estate Ventures: Navigating Corporation Tax
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Optimize Your Corporation Tax: Stop Overpaying Now!
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