What is the most tax efficient way to acquire a property and what tax issues can arise when purchasing a freehold property for business? Andrew Levene examines this for Tax Journal’s Ask an Expert column.
Question
Our client is a successful trading company (Tradeco). It has outgrown its existing rented trading premises and is considering purchasing a freehold property, which it will do using a mix of its own cash and bank funding. The property is larger than it needs for its requirements, so approximately half the building will be let to a third party. The company is owned 50:50 by Mr X and his wife, who also works in the business. What options are available for structuring the purchase?
Answer
Historically, there has been a driver to hold investment property outside a UK corporate, because of the low CGT rates for individuals. With the CGT rate at 28% and the corporation tax rate at 20%, there is now more incentive to hold in a company, especially if the owners are happy not to distribute all cash following a sale. Income tax on rents at the top rate of 45% is a further incentive to hold in a company.
Although Tradeco is highly successful, it may nevertheless face business risks. It may therefore prefer to ring fence the property from the business, and not to hold the property in Tradeco itself…
The full article is available via the Tax Journal website.