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Investing in Property - Think about your structure first

Whilst investing in property is popular and financially rewarding, we often see people buy a property and only discover the tax implications at a later date!

One of the larger items to consider is mortgage interest. Owning an investment property as an individual, means that mortgage interest is not 100% deductible against

income. The interest is, in reality, only deductible as a 20% tax credit on your self-assessment. Thus, a mortgage with £5k interest per annum will only receive £1k tax relief.

If you start your property investment journey by owning it as an individual, you are actually making it difficult to change the structure in the future without encountering tax issues.

Owning a property within a Ltd Company structure would provide a significant tax advantage of having the mortgage interest 100% deductible. However, this structure can be difficult at the outset as many lenders will charge higher rates or have fewer products available for a corporate structure.

Moving a property into a company structure at a later date is fraught with issues and costs. The initial consideration is how you actually move it into the company. Gifting it would create a lifetime charge for IHT and possibly stamp duty tax. Selling the property to the business through a directors loan would create a CGT issue and stamp duty, bearing in mind that stamp duty is at the higher rates for a company.

On balance, a company structure from the beginning should be the first consideration as, even with the higher costs, it offers opportunities to bring in shareholders, trusts holding shares, pushing growth to the next generation and general IHT planning.

If you are about to start on your property investment journey, get in touch and find out how setting up your structure with careful thought can benefit your longer term tax planning.

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