If you buy a property to make improvements and sell for a profit then you’re a trader, however if you buy a property and rent it out and wait till the value increases over the years then you’re an investor.
It’s important to distinguish between the two, as if you are a trader your gains on the improvements to the property well be taxed as income tax and not as capital gain unless you can prove that you intended to rent the property out.
Also when you own a property personally, your rental profits are taxed at your personal tax rate and when you sell the rental property then you pay capital gains tax (CGT) at either 18% or 28% or a combination of the two again depending on your level of income.
However, if you own a properties via a company then your company’s profits and capital gains are taxed at 20% assuming the profits are less than £300,000 a year.
Another benefit of accruing properties into a limited company is the finance cost restriction announced by the chancellor in the summer budges 2015, where individual landlords won’t be able to claim the cost of their mortgages on their rental properties, although a 20% basic rate tax relief will be introduced, limited companies are exempt from this and can still claim 100% of their finance costs.
Rental profits in the company can either be taken out as dividends or left in the company to invest in the next property, For further information please contact us on firstname.lastname@example.org.