You have profit sitting in the company. You want to buy another property. So you take the profit out personally, pay income tax on it, and put what is left into a new company as the deposit.
It feels like the obvious route. It is also the most expensive one available.
Up to 38% less cash needed
With the right structure, funding the same purchase can need up to 38% less cash than taking the profit out personally first.
The costly way is the one above: profit out, tax paid, buy with what is left.
The specialist way is to hold your companies underneath a holding company. Profit moves up to the holding company and back down to fund the next purchase inside the group, without that personal tax step first. The money never leaves, so it never gets taxed on the way out.
Every portfolio is different, and the figure depends on your rate of tax and how your companies are set up today. It is an illustration of what the right structure can be worth, not a promise.
It is not right for everybody
This is where a lot of advice goes quiet, so let us be direct about it.
A holding company is not free to set up, and it is not automatically the answer. The real question is whether the tax saved across your next two or three purchases is worth more than the cost of putting it in place. That is an arithmetic question with an actual answer, and it is a very different answer for someone buying one more property than for someone buying one a year.
There is also the question of what happens later: how the group looks when you want to sell one company, bring someone in, or pass it on. Structures are much easier to get right at the start than to unpick at the end.
What changes
- A straight answer on whether a holding company is worth it for you, including when it is not
- The structure worked out before you buy, rather than discovered afterwards
- Property in one company and a trading business in another, joined up properly instead of running as two unrelated things
- Your next purchase funded the cheapest legitimate way available to you
Who this is for
Landlords with more than one property, or with one property and firm plans for the next. If you have a trading business alongside the portfolio, it is worth a look regardless of how many properties you hold.
If you own a single property and have no intention of buying another, the honest answer is usually that the setup cost will not earn itself back, and we will tell you so.