ABSTRACT
Having looked at some of the factors affecting property financing, we need to see how they apply in practice in a property company structure. First, however, it is necessary to appreciate some of the fundamental differences between investing in property direct and investing in property company shares. Among these differences are:
Rental income from a directly-owned building comes through to the owner without any deduction for tax, though he will need to pay tax later if he is liable. Income from a property owned by a company, after outgoings have been deducted, is liable to corporation tax (for illustrative purposes we are sticking with the 35% corporation tax rate that applied in 1990-91). Dividends are paid by the company out of income that has borne corporation tax, though the corporation tax charge covers all or part of the basic rate income tax that shareholders would otherwise have to pay on the dividend (it depends on the individual shareholder’s tax status).
