Comparing The Options Available to Undertake Commercial Property Purchase
We have undertaken to cover both the Limited Company and Pension options in some detail in the respective articles which may be read by clicking on the links above.
Having outlined in some detail the advantages and disadvantages of different mechanisms of undertaking property investment, we have taken the opportunity of summarising in table form the salient points. Clearly this should not be utilised in isolation to make a final decision, but rather as a useful tool when discussing the options with a qualified tax specialist such as ourselves.
| Personal | Limited Company | SIPP or SSAS | |
Allowable property type |
Any | Any | Commercial only |
Buy to let - rental profit |
Income Tax | Corporation Tax | Tax Free |
Rate of tax |
20% or 40% | 21% or 29.75% | 0% |
Buy to let - capital growth |
Capital Gains Tax (CGT) | Corporation Tax | Tax Free |
Rate of tax |
18% | 21% or 29.75% | 0% |
Exemptions |
£9,600 per annum per person | Nil | Nil |
Trading profit |
Income Tax | Corporation Tax | Tax Free |
Rate of tax |
20% or 40% | 21% or 29.75% | 0% |
Source of borrowing |
Buy to lets or commercial | Buy to lets or commercial | Commercial |
| Borrowing potential | Buy to lets - 85% Commercial - 75% | Buy to lets - 85% Commercial - 75% | 50% of net scheme assets less existing borrowing |
Advantages |
No restriction on investment properties | Limited liability | Limited liability |
| More cost effective funding options | No restriction on investment properties | Tax free property returns - within pension | |
| Can access funds at any time | Dividends can assist in reducing personal tax | 25% of proceeds can be enjoyed as tax free cash | |
| Annual CGT exemptions | Can access funds at any time | Exempt from IHT prior to retirement | |
| Control over personal income and as such tax | |||
Disadvantages |
No control over personal tax on ongoing profits | Limited funding options | Restriction on investment properties |
| Investments will fall into estate for IHT purposes | Less cost effective funding options | No access to funds until minimum age 55 | |
| Unlimited liability | Accounting costs and requirements | Limited funding options | |
| Income taxable once drawn in retirement |
It is fair to say that there is no default option when it comes to property investment, as each will be appropriate to the individual circumstances and likely investment activity of the property investor. We would welcome the opportunity of discussing your specific needs and requirements and advising you accordingly. Please feel free to contact Peter Edwards or Tim Warr in this regard.
Date of Article: 28th January 2009
