Should Property Be Owned by Individuals or Companies?

Investment Holding Companies (IHCs) offer greater tax savings compared to personal ownership. This common assertion often prompts the question of which option to choose when purchasing property.

However, the advantages of Investment Holding Companies (IHCs) are diminishing in today's environment, for the following reasons:

1. Real Property Gain Tax (RPGT) Exemption for Personal Ownership After the 6th Year

Upon selling a property at a profit, RPGT is levied. However, since 2022, Malaysian citizens enjoy RPGT exemption for individual ownership exceeding 5 years.

Conversely, regardless of ownership duration, a company-owned property incurs RPGT upon profitable sale. Opting for individual ownership translates to a 10% RPGT saving.

2. Tax Rate Increase from 17% to 24% for Investment Holding Companies (IHCs)

Starting in 2020, IHCs ceased to qualify as Small and Medium Enterprises (SMEs), resulting in a tax rate hike from 17% to 24%.

For instance, with a rental gain of RM40,000 from property disposal, company ownership entails an additional 7% tax, amounting to RM2,800.

3. Maximum Loan Margin of 70% for Investment Holding Companies (IHCs)

Capitalist-minded investors typically aim to minimize upfront property purchase costs. While most banks offer up to 90% financing, company ownership restricts loan margins to a maximum of 70%, a 20% difference that significantly impacts cash flow.

4. Additional Recurring Fees of RM4,000 for Investment Holding Companies (IHCs)

Annual recurring fees, including company secretary, audit, accounting, and tax submission charges, escalate with rising company revenue.

Such expenses are absent in individual ownership.

5. Higher Stamp Duty Fees for Investment Holding Company (IHC) Ownership Transfer

IHC-owned properties incur substantially higher transfer costs. Stamp duty fees increase proportionately with property value, contrasting sharply with the minimal RM10 fee for individual property transfer facilitated by an established will.

The aforementioned reasons underscore why individual property ownership is preferable to IHC ownership.

However, as your trusted accounting and tax partner, we acknowledge special circumstances prompting corporate preference for IHC ownership:

1. Security: Segregation of Director and Company Interests

IHC ownership mitigates risks associated with individual incidents such as death or bankruptcy, as the property is held under the company's name, ensuring separation of interests and protecting both company and directors. In case of property losses, directors are only liable for their respective shares.

2. Group Property Acquisition by Individuals

In cases where friends or business partners collectively purchase property, forming an IHC streamlines ownership details, including percentage ownership and responsibilities, minimizing future disputes by establishing clear guidelines in the company's memorandum and articles of association.

In conclusion, while IHC ownership historically offered advantages, recent governmental measures have tilted the scales in favor of personal ownership. It's advisable to opt for personal ownership whenever possible, resorting to IHC ownership only when multiple individuals are involved in property acquisition or mortgage, and clear delineation of ownership is necessary.

29 Mar 2024