Can A Business Buy A Property?
Can a business buy property? The answer is yes, it can. The question that needs to be asked instead is whether a company should buy a property or not. There are a number of factors and considerations that are involved in answering the latter question. Here are the most prominent of such considerations:
The Treatment for Tax
If you own a property in your name, the profits that you make from that property will be added to your “income from property” in your taxable income. This will, obviously, cause your taxable income to dramatically shoot up, causing you to pay more tax in your name. If you purchase the piece of property under consideration through your corporation, however, then it means that the income from it will be liable for Corporation Tax and not tax for individuals.
Why is this of significance? It is because the rate of Corporation Tax is almost half of the higher rate of income tax. It might not look like much, but you can be certain of the fact that it will contribute to an enormous saving on tax. Be advised, though, that you will still be taxed for any income that you draw out from the company, in the name of dividends.
Tax on Mortgage Interest
For the time being, mortgage interest is an allowable expense for individual property investors. However, as of April 2020, it will cease to be so and individual property investors will only be able to claim a basic rate allowance. The point of interest here is that this won’t be applicable on companies that hold properties. What this means is that if you use your mortgages to buy property, your tax bill will be lower if the property is owned in the name of the company rather than your own.
The new law will affect all individual tax payers; but it will affect the higher rate taxpayers more, in particular. It is because they will need to pay more, as a result of the amendments made to the tax laws. So, if you are an individual who is looking to buy some investment properties, it is advisable for you to consider buying under the name of a limited liability company.
The Availability of Mortgage
While you will need to pay a lower rate of tax on mortgage interest if you buy a property in the name of a limited liability company, you will still face trouble when it comes to borrowing in the name of your business. In the past, mortgages for companies were known to be expensive and with lower borrowing limits. While such intense bottlenecks no longer exist, it would be wrong to say that finding a mortgage for your company has become smooth sailing…or has come closer it!
When it comes to securing a mortgage for your company, you will need to give personal guarantee, which will ultimately result into the scrutiny of your own financials. The procedure, on the whole, might make you feel as if you are trying to secure a personal mortgage, but you can be certain of the fact that the entire hassle has got its benefits.
When you talk about purchasing an investment property in the name of your business, you need to be advised that any income from the property that is made will be in the name of the company as well. Now if you were to leave the money in the account of your business to roll up (and hopefully buy new properties in the future) that would be fine. However, if you are looking to draw money out from the company, then you will need to pay tax on the dividends. What this means is that you will be getting taxed twice: the Corporate Tax first and the Dividend Tax when you are talking the money out for personal use.
What this means is that if you intend to use the income from property for personal use, you will need to run numbers and find out the alternative that requires you to pay the least amount of tax. So, is it best to purchase property in your name or in the name of your company? Well, there can be no definite answer, for there are a number of unique calculations that will need to be made. Grab a calculator and get working, or better yet…get a tax attorney to take care of the hassle for you!