Starting in Property – Portfolio vs Business

December 9, 2020

Getting started in the property world can be daunting. As an experienced and successful property developer, I often get people asking whether they would be better to start an investment portfolio or set themselves up as a business.


In short, there isn’t a right answer. It really depends on the number of properties, how you want to manage them, and much more. Below I’ll go into some detail about the differences of a portfolio vs a business, which will hopefully help you to make a decision.


What’s the difference between a portfolio and a business?


In the property world, a portfolio is a collection of properties you own, and doesn’t strictly refer to the ones you live in. You can own and manage these as an individual under your own name or incorporate them into a limited company.


But a property business also holds more options than simply owning a portfolio. For example, you could look into property development, corporate buy-to-let, or even property sourcing for developers. All of these are valid ways to make money, and I recommend doing some research to see which aligns with your interests and goals in the property market.


Portfolio vs business – tax


Perhaps one of the biggest deciding factors when it comes to starting in property is tax. It’s something that we all have to pay, and it’s fair to look for the most efficient way to do so.


If you manage your portfolio under your name, any profits you make will be treated as income, and taxed accordingly. When you sell properties, this will come under capital gains tax.


When you run it as a business, however, all of this will come under corporate tax. Corporate tax is 19% without a personal allowance, whereas income tax has a personal allowance of £12,500, after which you’re charged a minimum of 20%. This then increases with the more money you make.


The biggest deciding factor is how much time you plan on spending managing your properties. If you’re going to be hands on, whether this is managing tenants, developing properties, and so on, it makes sense to register as a business. But if you’re only looking for passive income while someone else manages the properties, then keeping them as a personal portfolio makes more sense.


How to decide which is right for you


When you start out in property it’s fair to assume you won’t be making loads of profit. Property is an investment and it takes time to start bringing in serious money. Consider these tips before you get going:


  1. Who is your market? Is it tenants, property developers, or buyers?
  2. Know your numbers. How much do you have to invest, and how soon will you turn a profit?
  3. Understand how tax can work for you. If this is confusing, speak to an accountant for advice.


I recommend surveying your local market before you go any further and deciding how you want to get involved in property. Your style of management and business should be influenced by your local market, so it’s important to find the right model. If you have any questions or would like any advice, please feel free to reach out to me.

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