5 Effective Tax-Saving Strategies with a Property Investment Company

A Buy-to-Let property can be purchased in one's own name or via a property investment company, generally set up as a Special Purpose Vehicle. In this guide, we take a closer look at five important ways of reducing tax liabilities using a property investment company.

1. Benefit from Lower Corporation Tax Rates

Buying through a limited company enables higher-rate taxpayers to enjoy corporation tax rates normally lower than the personal income tax rates. This may imply considerable savings on one's annual taxes, especially for those in the high-income brackets. 

The use of SPV allows investors to claim mortgage interest in full as an allowable deduction and reduce their taxable profit – a significant advantage accorded to properties not held personally.

2. Avoid Section 24 Limitations

Section 24 limits mortgage interest relief on personally owned properties, which is deterring to many landlords. In cases where an SPV invests in such property, this restriction does not apply. Investors are still able to deduct mortgage interests in full, thus reducing their taxable income. 

Thus, property investment through an SPV is one of these highly tax-efficient investments to consider in an environment that limits personal mortgage interest deduction.

3. Faster Savings for Future Investments

Holding profits inside a property investment company helps investors save faster for more property investments. For example, saving £15,000 for your next investment may take about 14 years personally, considering the amount after higher tax deductions will be small. 

On the other hand, through an SPV, one may reach that in a couple of years due to retained profit and lower corporate tax rates. This will definitely contribute a lot to accelerating your property investment growth.

4. Tax-Efficient Dividend Distribution

If you prefer the extraction of profit rather than reinvestment, drawing dividends from a property investment company will be a good idea. The first £500 of annual dividends is tax-free, and the remaining is taxed at a lower dividend tax rate compared to personal income tax. For high-rate taxpayers, drawing dividends from an SPV yields a higher net profit and tax benefits, thus maximising your earnings.

5. Flexible Ownership Options for Mixed Portfolios

Personally held properties transferred into a property investment company can be expensive, as both capital gains tax and stamp duty may be payable. Despite this, however, many investors usually wish to retain a mixed portfolio whereby existing properties remain personally owned and new purchases are attributed to SPVs. This gives them flexibility and allows investors to gradually move to a more tax-efficient structure without substantial transfer costs.

Conclusion

Tax efficiency can be achieved through many different avenues when using a property investment company, especially an SPV. As such, it is of extreme importance to both new and experienced investors looking to reinvest profits, save taxes, or navigate complexities associated with mortgage interest relief.