Top Tax Tips for Owner Managed Businesses
7. Ownership Structure of Business Property
The ownership structure of a property can have a major impact on the overall tax charge.
Where properties are expected to be sold for a significant gain, it can often be beneficial to retain personal ownership (or operate through a limited liability partnership) as the tax cost of extraction of capital gain from a company can be prohibitive.
Where property is held in the taxpayer’s personal name, the taxpayer may wish to charge rent in order to extract funds from the company. However, entrepreneur’s relief may not be available to secure the 10% rate of capital gains tax on a future sale of the property if the company pays rent to the taxpayer for the use of the property.
Pure investment property held for the long term may be better through a personal company.
It is sensible not to hold business property in a trading company. If the trading company gets into financial trouble then the creditors can access the property.
There are partnership structures available for more significant portfolios that can provide hybrid tax arrangements to cater better for capital growth and rental profits.
Another option is the use of a personal pension scheme. The pension can charge a rent to the trading company and it will not pay tax on the rents received. However, the entrepreneur must way this very tax efficient mid to short term arrangement with the tax costs of extracting the property’s value from the pension scheme in retirement.