Join forces and save taxes
By Carl Agar
A question I get asked a lot is ‘should I buy property with other people?’. The annoying and common answer is, predictably, that it depends on many variables.
The first point is that if you are buying a property for a pension or general investment with no aspirations to create a property business, then it could be advantageous to do this with a partner or family member.
There are quite a few variables to consider such as taxation and mortgage products etc so you do really need to consult with an accountant.
As an example if a married couple are looking to purchase a buy to let property then it could be advantageous to buy the property in both names and take advantage of both parties tax positions, especially if one party is a high rate tax payer and the other isn’t.
There are lots of different structures available for doing this, Sole Trader, Limited Liability Partnership or even a Limited Company.
If it’s an income that you are just going to pop on your tax return then no formal business structure will be required (technically you will be a sole trader) and it will be really important that you get your accountant to utilise both parties tax positions efficiently when calculating the overall tax liability, especially if the investment property is ever sold.
It is essential to get good quality tax planning advice
It really is essential to get some good quality tax planning advice, especially around inheritance tax.
If you are looking to build a property business then I would urge you to seriously consider the Limited company route or at least an LLP.
The first point is never and I mean never get into a business relationship with someone you do not trust or who has different aspirations to you, this will undoubtedly cause problems.
My preferred route has always been the Limited Company route as you can set clear shareholdings and clear management responsibilities within the business that everyone can acknowledge and adhere to.
Another major benefit is that it’s the Limited company that would be purchasing the properties not the individuals therefore if one party wanted out, the other party could buy them out without having to sell the property or do anything at Land Registry (unless any form of deed was in place), they would just need to buy the other parties shares.
The other major benefit is that Limited Companies can secure commercial lending against multiple properties, rather than individual properties saving thousands on mortgage renewal fees!
In conclusion I would say that it’s fine to buy property with other people providing that you have a clear business structure and all parties are clear about their financial responsibilities.
The major advantage is sharing the burden of deposits and future taxation on your property related income, but only do it with like minded people that you trust!