Ever since the dreadful ‘Clause 24’ restrictions were first announced, many landlords have been asking how they can get their property into a company, but few people think to ask about the other part of the story: how to get your money back out when you’re done!
There are three distinct phases to using a company to hold your property investments: Entry, Operation and Exit.
Much has been written about ‘Entry’: putting your properties into a company. This phase has its problems, most of all, the enormous Stamp Duty Land Tax (‘SDLT’) bill that will usually arise, but the Ramsay case tells us that holdover relief will often be available, creating long-term Capital Gains Tax (‘CGT’) benefits for many.
The ‘Operation’ phase, when the portfolio is being run through the company, is where we see tremendous benefits: with full
relief for interest and finance costs still available and a Corporation Tax rate of just 19% on the profits that remain (17% from 2020). The benefits are reduced where profits are extracted (typically as dividends) but as long as a reasonable amount is retained and reinvested in the company, the investor can enjoy significantly greater after tax returns.
But one day we have to consider ‘Exit’: what happens when you decide you’ve had enough and want to get out of the property business?