Buy to let question
Discussion
Overheard/forced to listen to a slightly confusing conversation on the train home earlier and it got me thinking.
Does anyone here know if this is normal/legal?
Small buy to let portfolio is owned outright with no mortgages by an individual. The rents are paid to a ltd company and the owner takes a salary and dividend monthly from this company. I assume the company is set up just for this purpose.
Many thanks
Does anyone here know if this is normal/legal?
Small buy to let portfolio is owned outright with no mortgages by an individual. The rents are paid to a ltd company and the owner takes a salary and dividend monthly from this company. I assume the company is set up just for this purpose.
Many thanks
rockin said:
How so? It sounds to me as thought the "owner" is making a "gift" of the rental income to the limited company which,
a) Seems odd, and
b) could end up in a serious tax tangle.
Depends on the relationship between the owner and the Ltd Company................my assumption was that they were one and the same.......the OP doesn't specify......a) Seems odd, and
b) could end up in a serious tax tangle.
Sarnie said:
Depends on the relationship between the owner and the Ltd Company................my assumption was that they were one and the same.......the OP doesn't specify......
For it to be “legal” wouldn’t the limited company have to own the property not the individual as the OP stated.Sarnie said:
Depends on the relationship between the owner and the Ltd Company................my assumption was that they were one and the same.......the OP doesn't specify......
For it to be “legal” wouldn’t the limited company have to own the property not the individual as the OP stated.tighnamara said:
For it to be “legal” wouldn’t the limited company have to own the property not the individual as the OP stated.
Again.......depends on the exact relationship between the owner and the company........which isn't stated.I have clients that own properties in their names but operate Ltd Companies for taxation purposes......similar to IT contractors who receive income via contract but operate Ltd Companies in the background and draw out salary and dividends as required..........
Rent is paid to the landlord.
If the owner of the property is an individual, the rent is paid to the individual.
If the owner is a company, the rent is paid to a company.
You could however, set up a limited company to "manage" your property for you. So, the company collects the rent on behalf of the landlord as a letting agent. It would then pass on the rent to the individual landlord having deducted its management fees (as that is how rental agents operate). Normally, the landlord (i.e. the individual) would still pay tax on rental income passed on by the management company, so there would not be much in the way of any tax saving going on.
That type of scenario could be manipulated if the owner of then property and the owner of the company was the same person. For instance, the company could set its management fees very high leaving a small amount of rent to pass to the individual. HMRC would not be too impressed if they saw that the way the money was being passed through the company to the individual showed there was blatant tax manipulation involved. Disclosure requirements should force the company to declare any connections between directors/shareholders and any assets generating income for the company.
If the owner of the property is an individual, the rent is paid to the individual.
If the owner is a company, the rent is paid to a company.
You could however, set up a limited company to "manage" your property for you. So, the company collects the rent on behalf of the landlord as a letting agent. It would then pass on the rent to the individual landlord having deducted its management fees (as that is how rental agents operate). Normally, the landlord (i.e. the individual) would still pay tax on rental income passed on by the management company, so there would not be much in the way of any tax saving going on.
That type of scenario could be manipulated if the owner of then property and the owner of the company was the same person. For instance, the company could set its management fees very high leaving a small amount of rent to pass to the individual. HMRC would not be too impressed if they saw that the way the money was being passed through the company to the individual showed there was blatant tax manipulation involved. Disclosure requirements should force the company to declare any connections between directors/shareholders and any assets generating income for the company.
Eric Mc said:
Rent is paid to the landlord.
If the owner of the property is an individual, the rent is paid to the individual.
If the owner is a company, the rent is paid to a company.
You could however, set up a limited company to "manage" your property for you. So, the company collects the rent on behalf of the landlord as a letting agent. It would then pass on the rent to the individual landlord having deducted its management fees (as that is how rental agents operate). Normally, the landlord (i.e. the individual) would still pay tax on rental income passed on by the management company, so there would not be much in the way of any tax saving going on.
That type of scenario could be manipulated if the owner of then property and the owner of the company was the same person. For instance, the company could set its management fees very high leaving a small amount of rent to pass to the individual. HMRC would not be too impressed if they saw that the way the money was being passed through the company to the individual showed there was blatant tax manipulation involved. Disclosure requirements should force the company to declare any connections between directors/shareholders and any assets generating income for the company.
Bingo. That’s as I understood it.If the owner of the property is an individual, the rent is paid to the individual.
If the owner is a company, the rent is paid to a company.
You could however, set up a limited company to "manage" your property for you. So, the company collects the rent on behalf of the landlord as a letting agent. It would then pass on the rent to the individual landlord having deducted its management fees (as that is how rental agents operate). Normally, the landlord (i.e. the individual) would still pay tax on rental income passed on by the management company, so there would not be much in the way of any tax saving going on.
That type of scenario could be manipulated if the owner of then property and the owner of the company was the same person. For instance, the company could set its management fees very high leaving a small amount of rent to pass to the individual. HMRC would not be too impressed if they saw that the way the money was being passed through the company to the individual showed there was blatant tax manipulation involved. Disclosure requirements should force the company to declare any connections between directors/shareholders and any assets generating income for the company.
Eric Mc said:
Rent is paid to the landlord.
If the owner of the property is an individual, the rent is paid to the individual.
If the owner is a company, the rent is paid to a company.
You could however, set up a limited company to "manage" your property for you. So, the company collects the rent on behalf of the landlord as a letting agent. It would then pass on the rent to the individual landlord having deducted its management fees (as that is how rental agents operate). Normally, the landlord (i.e. the individual) would still pay tax on rental income passed on by the management company, so there would not be much in the way of any tax saving going on.
That type of scenario could be manipulated if the owner of then property and the owner of the company was the same person. For instance, the company could set its management fees very high leaving a small amount of rent to pass to the individual. HMRC would not be too impressed if they saw that the way the money was being passed through the company to the individual showed there was blatant tax manipulation involved. Disclosure requirements should force the company to declare any connections between directors/shareholders and any assets generating income for the company.
That's the way I understood it. So the firm could easily charge say 15%, maybe even 20%..... but anything above that then you're pushing your luck.If the owner of the property is an individual, the rent is paid to the individual.
If the owner is a company, the rent is paid to a company.
You could however, set up a limited company to "manage" your property for you. So, the company collects the rent on behalf of the landlord as a letting agent. It would then pass on the rent to the individual landlord having deducted its management fees (as that is how rental agents operate). Normally, the landlord (i.e. the individual) would still pay tax on rental income passed on by the management company, so there would not be much in the way of any tax saving going on.
That type of scenario could be manipulated if the owner of then property and the owner of the company was the same person. For instance, the company could set its management fees very high leaving a small amount of rent to pass to the individual. HMRC would not be too impressed if they saw that the way the money was being passed through the company to the individual showed there was blatant tax manipulation involved. Disclosure requirements should force the company to declare any connections between directors/shareholders and any assets generating income for the company.
So,
And see Eric's point regarding a reasonable "margin" on the rents. The company in the middle needs to be able to demonstrate that it's actually performing some management services and everyone needs to be able to demonstrate the pricing between owner and company is reasonable. Since the going commercial rate for a professional Managing Agent is around 10% of rental income the usefulness of this structure may be limited unless there are several properties involved and the company in the middle is actually a building contractor doing its own repair work as well as acting as managing agent.
Gellco said:
Small buy to let portfolio is owned outright with no mortgages by an individual. The rents are paid to a properties are let to a ltd company where the owner of the properties is sole shareholder, sole director and sole employee and the owner takes a salary and dividend monthly from this company. I assume the company is set up just for this purpose. That company then rents out the properties to occupiers.
Yes. But note the owner isn't just receiving salary and dividend as originally stated - he's receiving a substantial amount of rent as well.And see Eric's point regarding a reasonable "margin" on the rents. The company in the middle needs to be able to demonstrate that it's actually performing some management services and everyone needs to be able to demonstrate the pricing between owner and company is reasonable. Since the going commercial rate for a professional Managing Agent is around 10% of rental income the usefulness of this structure may be limited unless there are several properties involved and the company in the middle is actually a building contractor doing its own repair work as well as acting as managing agent.
kurt535 said:
I own a company that has a number of BTL's bought in its name. i work for my company and receive basic salary and remainder cash as dividends.
Not the situation described by the OP. In your case, the company owns the properties therefore the rental income belongs to the company and the company pays Corporation Tax on the rental profits. You pay Income Tax (and NI, if appropriate) on the money you draw personally from the company.Another arrangement promoted by dodgy types lately is to use a declaration of trust to transfer the beneficial interest in the property to a newly incorporated company (avoiding CGT but not SDLT on the transfer through incorporation relief). The individual remains the legal owner of the property and liable for any mortgage. The rent is supposedly then taxed through the company, which covenants to make payments to the individual matching the mortgage amounts. The promoters mainly target BTL landlords trying to avoid the increasing restrictions on mortgage interest relief.
Highly likely to fall foul of the the Ramsay Principle, let alone the General Anti-Avoidance Rule though and mortgage providers are will take a very dim view too (the promoters say you don't have to notify the mortgage provider). No doubt when it all goes tits-up, the promoters will have disappeared.
Highly likely to fall foul of the the Ramsay Principle, let alone the General Anti-Avoidance Rule though and mortgage providers are will take a very dim view too (the promoters say you don't have to notify the mortgage provider). No doubt when it all goes tits-up, the promoters will have disappeared.
Eric Mc said:
kurt535 said:
I own a company that has a number of BTL's bought in its name. i work for my company and receive basic salary and remainder cash as dividends.
Not the situation described by the OP. In your case, the company owns the properties therefore the rental income belongs to the company and the company pays Corporation Tax on the rental profits. You pay Income Tax (and NI, if appropriate) on the money you draw personally from the company.Gassing Station | Finance | Top of Page | What's New | My Stuff