Are you paying more tax than you need to on your property portfolio?
Choosing the right ownership structure can dramatically reduce your liabilities and maximise returns.
Let’s break down two popular structures:
- Family Investment Companies (FICs)
- Limited Liability Partnerships (LLPs)
Family Investment Company: The Preferred Choice for Growing Portfolios
A Family Investment Company (FIC) is a limited company specifically created to hold property and other investments. It provides numerous tax advantages:
- Corporation tax of 25%, typically lower than personal income tax rates.
- Complete mortgage interest deduction.
- Flexibility in how profits are withdrawn via salary and dividends.
- Efficient reinvestment of profits within the business.
- The ability to set up multiple share classes to save income tax and capital gains tax.
- The ability to completely control the company while not owning the assets for the avoidance of inheritance tax.
While beneficial, an FIC requires careful tax planning. Transferring existing properties into an FIC might trigger capital gains tax and stamp duty. Expert guidance is crucial to avoid these taxes and navigate these issues smoothly.
LLPs: Flexible Income Distribution
A Limited Liability Partnership offers flexibility and simplicity, making it attractive for:
- Distributing income efficiently among family members to utilise lower tax brackets.
- Facilitating the introduction of new investors or partners.
- Smoothly transitioning properties between generations.
- Insuring that should you ever be successfully sued by a tenant in the event of a serious injury or death in your property, the only liability you have is the loss of the property portfolio. Without the LLP or limited company, you could lose everything you own, including your home.
Interestingly, LLPs can act as a stepping stone. By holding properties in an LLP for at least three years, you can later transfer them into a Family Investment Company, benefiting from significant tax reliefs via Section 162 Incorporation Relief.
Making the Right Choice
Deciding between an FIC and LLP depends on your personal circumstances and investment goals. Consider:
- Your current tax rate and potential savings.
- Your plans for scaling your portfolio.
- Your income needs and extraction strategies.
- Family succession and estate planning objectives.
Don’t Navigate Alone
Smart property investors don’t leave structure to chance. At Smart Business Tax, we guide you through the complexities of property ownership structures. Whether you choose an FIC, LLP, or a hybrid solution, we’ll ensure you pay only what you need to, keeping more of your profits in your pocket.
Take the first step towards tax-efficient property investing today.
Schedule your free consultation with our experts.
