Purchasing real estate privately or through a company?
August 12, 2011 | 30,00 EUR | answered by Dr. Yanqiong Bolik
I would like to know what the better tax decision would be to purchase a property privately or through my company (Ltd).
Background:
Property:
The house is a semi-detached house. The other half of the semi-detached house was purchased years ago and is currently privately owned but also financed. The newly acquired property consists of 3 units, which are intended to be rented out (for approximately 920€ per month - partially to family members), with the possibility that my company may later use some of the units itself.
There are still renovation measures to be carried out.
I am the sole shareholder of the Ltd and the managing director.
The property is to be financed through a loan.
Now the question arises, what is more sensible - purchase through the company (Ltd.) or privately by me.
I kindly ask for detailed information on the respective advantages and disadvantages. I am also grateful for any tips and advice.
Dear inquirer,
Thank you for your inquiry, which I am happy to answer taking into account your contribution and the rules of this platform. This is a fundamental initial assessment of the situation you have described.
In order for the following explanation to be helpful and useful to you, it is important that my assessment is based on the correct facts. Please note that adding, omitting, or changing information could affect the tax outcome.
Basic implications of acquiring a property as a private individual:
- The property is in your personal assets, not in the assets of the Ltd. I assume that your Ltd is a corporation.
- If you use the property for renting to third parties, you will generate rental income. The surplus is subject to your income tax rate. The property remains in your personal assets. After a holding period of 10 years, you can sell the property at a profit income tax-free. Losses are also disregarded for tax purposes.
- If you lease the property to your Ltd, a company split is established. Renting the property then constitutes a commercial activity (ownership company). The property is generally in the assets of your ownership company. Future capital gains are generally taxable. Losses reduce the taxable income.
Basic implications of acquiring a property by Ltd:
- The property is in the fixed assets of the Ltd. The Ltd generates income from renting the property. Profits are subject to corporate tax and trade tax.
- Gratuitous private use of the property results in a hidden distribution of profits from the Ltd to shareholders, which is taxable.
- Transferring the property from Ltd to shareholders usually triggers real estate transfer tax. Capital gains are generally taxable. Losses reduce the taxable income.
Please consider that you have touched upon a very complex topic, and that the initial assessment does not replace tax advice. A final and comprehensive tax assessment is only possible within the framework of a detailed examination of the circumstances. Please also consider English tax law, etc.
I hope that my explanation has been helpful to you and I am available for further questions.
Best regards,
Dr. Yanqiong Bolik
Tax consultant
Bildstöckle 6, 70567 Stuttgart
Tel: +49 (0)711 / 9332 2657
Email: info@zdbz.de
