Reducing tax on investment properties
By Niall Murphy
Many landlords hold their properties personally. This means that income received on rental properties is charged at income tax rates of up to 45 per cent. When the property is sold, capital gains tax (CGT) is chargeable at up to 28 per cent.
In contrast, rental income profits and gains in a company are charged to corporation tax at a maximum of 21 per cent and, where a property is sold by a company, an indexation allowance is given to reduce any taxable gain it makes on the sale.
However, in order to access the more favourable tax treatment provided by corporate ownership, it is necessary to transfer the rental properties into the company, which normally triggers a CGT charge. While there are provisions deferring a tax charge on the transfer of assets to a company, these only apply where the asset is a business asset rather than an investment asset…
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