Setting up a Ltd company to purchase a buy to let
Discussion
Eric Mc said:
Are you a higher rate taxpayer already?
Is the property going to generate a profit from day one of ownership?
If the 40% bracket is higher, then yes (I know there is a 45% bracket, I am not quite in that)Is the property going to generate a profit from day one of ownership?
The first property, after monthly mortgage payments will be generating a profit in its first month. I understand (rightly or wrongly) there is tax relief to be had on profits that are being used to repay capital off the property, but obviously I will ask my accountant about this.
Mortgage REPAYMENTS are not allowable against rental income.
Mortgage INTEREST is.
Of course, if the repayments are in respect of an "interest only" mortgage, then the repayments and the interest amounts will be one and the same.
Is there the possibility of joint ownership of the property?
Mortgage INTEREST is.
Of course, if the repayments are in respect of an "interest only" mortgage, then the repayments and the interest amounts will be one and the same.
Is there the possibility of joint ownership of the property?
Eric Mc said:
Mortgage REPAYMENTS are not allowable against rental income.
Mortgage INTEREST is.
Of course, if the repayments are in respect of an "interest only" mortgage, then the repayments and the interest amounts will be one and the same.
Is there the possibility of joint ownership of the property?
Thanks for clarification on that Eric.Mortgage INTEREST is.
Of course, if the repayments are in respect of an "interest only" mortgage, then the repayments and the interest amounts will be one and the same.
Is there the possibility of joint ownership of the property?
There could be a possibility of a joint ownership if there was a benefit to be had? I was going to go at it alone but I have had interest from a friend.
My colleague and I were considering buying some BTL properties through our Ltd company and it turns out the costs (size of deposit, initial charge and interest rates) are far higher than if you do it as individuals.
The Ltd company will be paying 20% corporation tax on all profits (which will be rental income minus running costs plus interest), and if you ever want any of this free cash paid out to you as an individual, you will have to take it as a dividend and pay further tax on it. As a higher rate tax payer, I think you'll end up having paid about 45% tax (this includes the 20% corp tax) as opposed to 40% if you did purchased the BTL as an individual.
As Eric says, you also pay 20% corp on any profits when you come to sell (along with personal income tax if you choose to take these funds as a dividend taking you back up to 45%), where as a individual would pay a flat 18% or 28% dependant on their income tax bracket and also pays no CGT on the first £11k of the profit made. If you bought in joint names, you would get 2 x £11k allowance.
The Ltd company will be paying 20% corporation tax on all profits (which will be rental income minus running costs plus interest), and if you ever want any of this free cash paid out to you as an individual, you will have to take it as a dividend and pay further tax on it. As a higher rate tax payer, I think you'll end up having paid about 45% tax (this includes the 20% corp tax) as opposed to 40% if you did purchased the BTL as an individual.
As Eric says, you also pay 20% corp on any profits when you come to sell (along with personal income tax if you choose to take these funds as a dividend taking you back up to 45%), where as a individual would pay a flat 18% or 28% dependant on their income tax bracket and also pays no CGT on the first £11k of the profit made. If you bought in joint names, you would get 2 x £11k allowance.
Cockey said:
My colleague and I were considering buying some BTL properties through our Ltd company and it turns out the costs (size of deposit, initial charge and interest rates) are far higher than if you do it as individuals.
The Ltd company will be paying 20% corporation tax on all profits (which will be rental income minus running costs plus interest), and if you ever want any of this free cash paid out to you as an individual, you will have to take it as a dividend and pay further tax on it. As a higher rate tax payer, I think you'll end up having paid about 45% tax (this includes the 20% corp tax) as opposed to 40% if you did purchased the BTL as an individual.
As Eric says, you also pay 20% corp on any profits when you come to sell (along with personal income tax if you choose to take these funds as a dividend taking you back up to 45%), where as a individual would pay a flat 18% or 28% dependant on their income tax bracket and also pays no CGT on the first £11k of the profit made. If you bought in joint names, you would get 2 x £11k allowance.
I have noticed that the mortgage rates are somewhat higher. The Ltd company will be paying 20% corporation tax on all profits (which will be rental income minus running costs plus interest), and if you ever want any of this free cash paid out to you as an individual, you will have to take it as a dividend and pay further tax on it. As a higher rate tax payer, I think you'll end up having paid about 45% tax (this includes the 20% corp tax) as opposed to 40% if you did purchased the BTL as an individual.
As Eric says, you also pay 20% corp on any profits when you come to sell (along with personal income tax if you choose to take these funds as a dividend taking you back up to 45%), where as a individual would pay a flat 18% or 28% dependant on their income tax bracket and also pays no CGT on the first £11k of the profit made. If you bought in joint names, you would get 2 x £11k allowance.
What would happen in the future if for arguments sake I had 4 x £200k properties owned by a LTD company and I wanted to collapse the company and have the houses put in my name personally?
yammyfan said:
Cockey said:
My colleague and I were considering buying some BTL properties through our Ltd company and it turns out the costs (size of deposit, initial charge and interest rates) are far higher than if you do it as individuals.
The Ltd company will be paying 20% corporation tax on all profits (which will be rental income minus running costs plus interest), and if you ever want any of this free cash paid out to you as an individual, you will have to take it as a dividend and pay further tax on it. As a higher rate tax payer, I think you'll end up having paid about 45% tax (this includes the 20% corp tax) as opposed to 40% if you did purchased the BTL as an individual.
As Eric says, you also pay 20% corp on any profits when you come to sell (along with personal income tax if you choose to take these funds as a dividend taking you back up to 45%), where as a individual would pay a flat 18% or 28% dependant on their income tax bracket and also pays no CGT on the first £11k of the profit made. If you bought in joint names, you would get 2 x £11k allowance.
I have noticed that the mortgage rates are somewhat higher. The Ltd company will be paying 20% corporation tax on all profits (which will be rental income minus running costs plus interest), and if you ever want any of this free cash paid out to you as an individual, you will have to take it as a dividend and pay further tax on it. As a higher rate tax payer, I think you'll end up having paid about 45% tax (this includes the 20% corp tax) as opposed to 40% if you did purchased the BTL as an individual.
As Eric says, you also pay 20% corp on any profits when you come to sell (along with personal income tax if you choose to take these funds as a dividend taking you back up to 45%), where as a individual would pay a flat 18% or 28% dependant on their income tax bracket and also pays no CGT on the first £11k of the profit made. If you bought in joint names, you would get 2 x £11k allowance.
What would happen in the future if for arguments sake I had 4 x £200k properties owned by a LTD company and I wanted to collapse the company and have the houses put in my name personally?
Eric Mc said:
The main allowance you lose is the personal CGT allowance (currently £11,000 per person). If a company sells an investment property, it will pay CGT at Corporation Tax rates (20%) on the full profit on the sale.
An individual will pay either 18% or 28% (or a combination of both) on the profit LESS their personal CGT allowance of £11,000. If the property is owned by more than one person, then the profit is split between each individual who will each apply their own personal CGT allowance to their share of the profit.
Not quite correct - the company will benefit from Indexation Allowance applied to the base cost before calculating any chargeable gain on its sale.An individual will pay either 18% or 28% (or a combination of both) on the profit LESS their personal CGT allowance of £11,000. If the property is owned by more than one person, then the profit is split between each individual who will each apply their own personal CGT allowance to their share of the profit.
David
I run a Limited Company myself, and it's so flush with cash I thought of doing the same thing, as I already have 2 BTLs personally.
Frankly, tax-issues aside, raising the finance is a total pain in the arse. Single-purpose BTL Ltd Co's pay through the nose for funding, unless they have a large portfolio. It's like getting funding for a moon landing
Do it personally if you want to do it. Way easier and cheaper. If you buy and hold you should be paying buttons in tax anyway - I have recorded a loss for the last two years after fees, interest and 'improvements'
Frankly, tax-issues aside, raising the finance is a total pain in the arse. Single-purpose BTL Ltd Co's pay through the nose for funding, unless they have a large portfolio. It's like getting funding for a moon landing
Do it personally if you want to do it. Way easier and cheaper. If you buy and hold you should be paying buttons in tax anyway - I have recorded a loss for the last two years after fees, interest and 'improvements'
yammyfan said:
I have noticed that the mortgage rates are somewhat higher.
What would happen in the future if for arguments sake I had 4 x £200k properties owned by a LTD company and I wanted to collapse the company and have the houses put in my name personally?
And SDLT to pay also on eachWhat would happen in the future if for arguments sake I had 4 x £200k properties owned by a LTD company and I wanted to collapse the company and have the houses put in my name personally?
wattsm666 said:
yammyfan said:
Ah it's as I thought then. That's good news.
I'm unsure how I could fund the ltd company with the 50 percent deposit and secure a mortgage against the company. Or does this best fit a 100 percent cash buyer?
You loan the company money, interest free. Then the company borrows the rest.I'm unsure how I could fund the ltd company with the 50 percent deposit and secure a mortgage against the company. Or does this best fit a 100 percent cash buyer?
We do it all the time to buy property. We gear at between 60 and 95 percent and put the balance in as equity. The equity is charged at 10% pa, or 15% if there is abortive risk.
blueg33 said:
Why would you lend the company money interest free? Surely you would lend it at equity rates say 10% pa. The company would then have this as a cost thus reducing the profit and reducing the tax. Speak to an advisor because you may need some sort of vehicle tp put the funding through.
We do it all the time to buy property. We gear at between 60 and 95 percent and put the balance in as equity. The equity is charged at 10% pa, or 15% if there is abortive risk.
If you are a higher rate tax payer and it is your company you may be better off without the interest, otherwise you trigger higher rate income tax. No interest leaves a higher profit in company but lower tax rate. Depends if you want cash out of the company or not. We do it all the time to buy property. We gear at between 60 and 95 percent and put the balance in as equity. The equity is charged at 10% pa, or 15% if there is abortive risk.
wattsm666 said:
blueg33 said:
Why would you lend the company money interest free? Surely you would lend it at equity rates say 10% pa. The company would then have this as a cost thus reducing the profit and reducing the tax. Speak to an advisor because you may need some sort of vehicle tp put the funding through.
We do it all the time to buy property. We gear at between 60 and 95 percent and put the balance in as equity. The equity is charged at 10% pa, or 15% if there is abortive risk.
If you are a higher rate tax payer and it is your company you may be better off without the interest, otherwise you trigger higher rate income tax. No interest leaves a higher profit in company but lower tax rate. Depends if you want cash out of the company or not. We do it all the time to buy property. We gear at between 60 and 95 percent and put the balance in as equity. The equity is charged at 10% pa, or 15% if there is abortive risk.
EddieSteadyGo said:
It doesn't usually make sense to charge interest on money lent personally by a director to their business.
It makes your personal tax affairs a bit more complicated. Plus you would be better leaving the 'extra' profit on what would have been interest payment in the company as this gives a lot more tax flexibility.
It can be beneficial to charge interest as a method of extracting funds, since it is not subject to nic unlike salary, but is still tax deductible. All depends on the circumstances. It makes your personal tax affairs a bit more complicated. Plus you would be better leaving the 'extra' profit on what would have been interest payment in the company as this gives a lot more tax flexibility.
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