Buying a building: personally, through a company, or through a holding?

A property purchase is usually planned around the price, the lender and the survey. The ownership structure is often decided on the day by whoever fills in the forms. Yet the choice between owning personally, through a company, or through a company held by a holding company decides how rent is taxed, whether mortgage interest is deductible, what a later sale costs and how easily the property passes to the next generation. Changing the structure after purchase can trigger transfer taxes and capital gains, so the decision belongs before exchange.

Owning personally

Personal ownership is simple and cheap to run. Rental profit is added to your other income and taxed at your marginal rate. In the UK, individuals letting residential property cannot deduct mortgage interest; they receive a tax credit at the basic rate instead, which hurts higher and additional rate taxpayers. On sale, the gain is subject to capital gains tax, with the annual exemption available. For many people owning one or two properties, this remains the right answer.

Owning through a company

A company pays corporate tax on its rental profit, and in the UK a company can generally deduct its finance costs in full. The catch is that profits taken out as dividends are taxed again in your hands, so the advantage depends on how much you need to extract. A company suits owners who will reinvest the income to repay debt or buy further property.

Companies buying residential property face their own rules. In the UK, higher rates of stamp duty land tax apply to companies buying dwellings, and residential property worth over £500,000 held by a company can fall within the annual tax on enveloped dwellings. Both have reliefs for genuine property rental businesses, but the reliefs have conditions and must be claimed. Commercial property is treated differently on each of these points. Across Europe, transfer taxes on property purchases exist almost everywhere, at rates and on bases that vary by country and sometimes by region.

Adding a holding company

Holding each property, or each group of properties, in its own company, with a holding company above them, separates the risks of each building and makes it possible to sell a property by selling its company. Buyers may accept that, but the tax advantage is smaller than many assume. Several European countries charge transfer tax when shares in a property-rich company change hands, and the UK taxes non-residents on disposals of interests in UK property-rich companies. In the UK, the Substantial Shareholding Exemption requires the company sold to be trading, which a property investment company usually is not. A holding structure also helps with succession planning, because shares are easier to divide between family members than buildings.

Financing

Lenders treat companies differently from individuals. Rates, fees and personal guarantees vary, and some lenders only lend to companies set up for the purpose. Interest paid by a company is generally deductible, subject to interest restriction rules that mainly affect larger groups. If the deposit comes from you, lending it to the company rather than subscribing for shares lets you take it back later without further tax.

Before you sign

• Decide who the buyer is before the offer is accepted; changing it after exchange usually costs transfer tax.
• Model the rent, interest and extraction over the years you expect to hold, and the tax on a sale at the end.
• Check which transfer tax rates and reliefs apply to that buyer and that property.
• Agree the lender's requirements for the buying entity early.
• Think about who should own the property in twenty years, and structure the purchase with that in mind.

If you are about to buy a building, call us before you sign. The first 30-minute consultation is free, and every request is answered within 24 hours.

General information, not advice. Tax rules change and depend on your facts. Greyridge Global coordinates and delivers cross-border tax and corporate work through appropriately licensed professionals in each jurisdiction. Legal, tax, immigration, fiduciary, and regulated services are provided by qualified advisors engaged for your matter. Nothing on this page is tax or legal advice.