Tax tip: The real estate limited liability company as an alternative to a private purchase

"Is it better to buy an investment property privately or is it worth setting up a separate company for this purpose, such as a limited company?" You should always ask yourself this question before investing in a property rented to a third party.

If you invest privately, the profits generated will flow into your private assets and are taxable as part of your personal income tax. They therefore lead to a current income tax burden. If you invest via a private real estate GmbH, you only have to pay the fixed 15 per cent corporation tax and a solidarity surcharge of 5.5 per cent on the corporation tax.

As a rule, a GmbH must also pay trade tax on its income. However, this does not apply if it is exclusively a property rental company or if the GmbH is exclusively active in asset management and any commercial activity is avoided. It is important to be careful here, as even the installation of solar systems or the installation of coin-operated washing machines can constitute a commercial activity.

For a tax advantage comparison between private investment or investment via a GmbH, the expected rental surplus must be estimated. Relevant factors are the expected actual expenditure and the tax depreciation. This is generally two per cent on the building share.

If the property is to be financed, only the interest is tax-deductible for the tax calculation, but not the amortisation payments. A major advantage of private property investments is that the property can be sold tax-free outside the tax holding period of ten years. If you anticipate high increases in value over a long holding period, a private investment will be advantageous.

The question of whether to invest privately or via a property company should always be carefully considered. Ultimately, the property GmbH only offers a tax deferral effect. If the assets of the GmbH are distributed or liquidated, a profit is taxable at the private level. As a result, a property GmbH is ideal for investors who want to build up property assets in the long term with a tax advantage. In this case, the effort required may well be worthwhile and be associated with a significant tax liquidity advantage.