2008 CGT changes and using a property company

The CGT changes that apply from April 2008 as well as the general changes to the tax rates over the next year or two mean that if you own property personally there will be a CGT rate of 18%, whereas the income tax on rental income will be 20% for basic rate taxpayers and 40% if you're a higher rate taxpayer. If a company is used the company would be looking to pay corporation tax at 22% at the small companies rate, rising to 28% if the company paid tax at the full rate on both income and gains. Even under the current regime owning the properties personally is likely to be preferred in CGT terms, and the changes to the tax rates make this even more favourable. Any future disposal of the properties would be taxed at 18% if owned personally, but 22% (or more) using a company. This assumes as well that no cash is extracted from the company and that the proceeds were reinvested into more assets. If proceeds needed to be extracted and the dividends exceeded the available basic rate tax band a further income tax charge at an effective 25% would be charged. Therefore for property investors owning personally still retains significant tax advantages.