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If a landlord incorporates or buys new property via a limited company is it considered a Trading or Investment Company and is there any difference in the tax treatment?
Most are set up as non trading SPVs Special Purpose Vehicles with specific SIC codes. Some lenders insist on this but not all if your accountant advises you top use a trading company (or indeed holding company or one where a trust is involved)...for the right deal as a broker I can confirm lending is available out there at decent rates should you need.
So for tax purposes are they treated as a trading or an investment company?
I would ask a Tax expert on this question
its quite complicated Essex
But as I understand it an SPV is normally used for a one off investment say a building plot or a large development
The clue is in the title SPV.
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
I know but it is an interesting subject - is your limited company consided to be a trading company or an investment company?
Its a bit of both that's why I say seek advice
Mine is treated as an investment company
I also have an IT Ltd co which is treated as a trading company. You asked at the outset what is the main difference. As I understand it, when I close the IT company (which I hope to do soon) then I can claim entrepreneur relief and pay only a marginal rate of tax (10% ?). The same cannot happen if it was an investment company
Thanks, it seems that further taxation could be brought in for investment companies whilst leaving trading companies alone.
Yes and leave as much cash as you are able in the business and sell for the higher corresponding price and you will have effectively withdrawn the cash and only be taxed at 10%
Sell? There are no assets to sell.
It just 'cash in bank' on the balance sheet. So I just assumed that I'd liquidate the company, pay 10% tax, and then pocket the rest?
Assuming the company is only involved in Buy to Let or HMO's then the company is an Investment Company for Tax purposes. If it is doing Serviced Accommodation or Property Flips then it is a Trading Company for Tax purposes. If the company is undertaking a mixture of these scenario's then it will most probably fall into the Investment Company category, the difficulty here is that there is no clear definition of when a company with mixed income moves from being trading to investment.
Nigel Reynolds FCCA CMgr FCMI
Property Tax Specialist
Reynolds and Co