Property development : Ltd vs Personal tax

crisp

An experienced property developer suggested that a Ltd company would be more tax efficient than working as an individual.

He advised that first £10k of profits at 0% and then 23.5% tax band.

I was thinking about it.

If you used a company to develop and sell you would be liable for corporation tax. While for the purposes of reinvestment you would be at an advantage compared to doing it as an individual. However, if you wanted to enjoy your profits and withdraw funds surely you would then be liable to personal or divident tax on top of this wouldnt this spike you to greater than tax at the higher personal band?

Can any one shed light on this?

Thanks

WHA

Yes, you're quite correct. A company is a "low tax" environment until you actually need to draw the funds when you will be hit with income tax (on dividends) or capital gains tax (on capital distribution on winding up). Lots of experts have done projections and the end result is often similar, though you have more money along the way as the "double tax" is deferred until the company is wound down. Impossible to advise really as there are too many variables - what will the profits be? how many properties? how many will be bought and sold along the way? will tax rates and rules change? Generally, people seem to keep properties owned personally if they are amateurs (i.e. one or two speculative purchases) and people tend to go through companies if they are professionals (i.e. large property portfolios).

TaxTony

Rough rule of thumb - an individual in business will pay less tax if her business is in a company rather than as a sole trader if annual profits are below £400,000. The maximum benefit is at around £300,000 - it then falls away. The company also defers some of the tax until the profits are taken. There's plenty of advice around about how to structure this. Main reason for doing a property development in a company is that it isolates the person from the financial consequences of the developement going badly wrong. But the bank will ask for a personal guarentee and being a director of an insolvent company can generate personal liabilities and affect future creditworthiness.