Setting up a Ltd company to purchase a buy to let
Discussion
I work full time and pay 40 percent tax.
Am I correct in thinking if I was to purchase a buy to let property (50 percent deposit for arguments sake) any rental income would be subject to a 40 percent reduction?
Please can somebody hear this scenario out: I was to set up a LTD company and purchase a property through the ltd company and have the rental income accumulate in the accounts; with me as the sole director and not drawing anything from the company. Only money expenditure from the company would be property repairs and mortgage repayments. The accumulated funds would be reinvested. Is this possible? I assume not as lots of people would of done it...
This is with a view to draw profits when I'm not in full time work.
If it is possible what tax would the rental income be subject to?
Am I correct in thinking if I was to purchase a buy to let property (50 percent deposit for arguments sake) any rental income would be subject to a 40 percent reduction?
Please can somebody hear this scenario out: I was to set up a LTD company and purchase a property through the ltd company and have the rental income accumulate in the accounts; with me as the sole director and not drawing anything from the company. Only money expenditure from the company would be property repairs and mortgage repayments. The accumulated funds would be reinvested. Is this possible? I assume not as lots of people would of done it...
This is with a view to draw profits when I'm not in full time work.
If it is possible what tax would the rental income be subject to?
yammyfan said:
I work full time and pay 40 percent tax.
Am I correct in thinking if I was to purchase a buy to let property (50 percent deposit for arguments sake) any rental income would be subject to a 40 percent reduction?
Please can somebody hear this scenario out: I was to set up a LTD company and purchase a property through the ltd company and have the rental income accumulate in the accounts; with me as the sole director and not drawing anything from the company. Only money expenditure from the company would be property repairs and mortgage repayments. The accumulated funds would be reinvested. Is this possible? I assume not as lots of people would of done it...
This is with a view to draw profits when I'm not in full time work.
If it is possible what tax would the rental income be subject to?
It is possible to do, very popular in the past but it's now far more difficult to get funding for this kind of structure unless the asset base is significant - read multiple properties with strong income streams.Am I correct in thinking if I was to purchase a buy to let property (50 percent deposit for arguments sake) any rental income would be subject to a 40 percent reduction?
Please can somebody hear this scenario out: I was to set up a LTD company and purchase a property through the ltd company and have the rental income accumulate in the accounts; with me as the sole director and not drawing anything from the company. Only money expenditure from the company would be property repairs and mortgage repayments. The accumulated funds would be reinvested. Is this possible? I assume not as lots of people would of done it...
This is with a view to draw profits when I'm not in full time work.
If it is possible what tax would the rental income be subject to?
For a 1 off or small portfolio in-incorporated is better if you need funding.
I'll let a tax expert comment on that aspect
The profit in the company would be subject to corporation tax, c.20%. The company would also pay cgt on disposal of the property in due course.
If you then draw the profits out by dividend now or in the future they would be subject to income tax on you,
You need to take proper advice from an accountant, it can in the right circumstances be a sensible move but it can also be a disaster.
If you then draw the profits out by dividend now or in the future they would be subject to income tax on you,
You need to take proper advice from an accountant, it can in the right circumstances be a sensible move but it can also be a disaster.
wattsm666 said:
The profit in the company would be subject to corporation tax, c.20%. The company would also pay cgt on disposal of the property in due course.
If you then draw the profits out by dividend now or in the future they would be subject to income tax on you,
You need to take proper advice from an accountant, it can in the right circumstances be a sensible move but it can also be a disaster.
Thanks. Are you sure I would be subject to corporate tax if I was re-investing funds? If you then draw the profits out by dividend now or in the future they would be subject to income tax on you,
You need to take proper advice from an accountant, it can in the right circumstances be a sensible move but it can also be a disaster.
Also, wouldn't i personally be subjected to cgt if I was to make a significant profit on a property?
yammyfan said:
Thanks. Are you sure I would be subject to corporate tax if I was re-investing funds?
Also, wouldn't i personally be subjected to cgt if I was to make a significant profit on a property?
The company pays corporation tax on profits, so it would pay them not you, retaining profits has no bearing on corporation tax in the company, it is payable on profits, Also, wouldn't i personally be subjected to cgt if I was to make a significant profit on a property?
Cgt is payable by the company, since it owns the property not you, in addition you might be then subject to cgt to get the funds out. This is why a company is not always good, but it all depends.
Pay an accountant for advice, get it wrong and it will be costly over the years.
nyt 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?
4lf4-155 said:
Yammy - this isn't meant to sound patronising but I can't think of another way of saying it...! Your questions indicate that you should speak to an accountant to get proper advice
Not taken in a patronising manner at all. I will of course appoint an accountant to handle this, I work in IT, I'm by no means an accountant! I am exploring if 'in theory' the idea works first. I have been looking at buying a BTL and this idea cropped into my head. Given the articles etc it's clearly been done before
wattsm666 said:
The company pays corporation tax on profits, so it would pay them not you, retaining profits has no bearing on corporation tax in the company, it is payable on profits,
Cgt is payable by the company, since it owns the property not you, in addition you might be then subject to cgt to get the funds out. This is why a company is not always good, but it all depends.
Pay an accountant for advice, get it wrong and it will be costly over the years.
Thanks, I structured that question wrong. I appreciate the company would be subject to tax, not myself. I just didn't know if it would be subject to 20 percent if funds were re-invested. I have just researched it a little more and can see that it will. Cgt is payable by the company, since it owns the property not you, in addition you might be then subject to cgt to get the funds out. This is why a company is not always good, but it all depends.
Pay an accountant for advice, get it wrong and it will be costly over the years.
The CGT tax question was focussing on if I didn't go down the LTD tax route. If I was to privately purchase a house and then sell it for a profit would I personally be subject to CGT?
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?
z4RRSchris99 said:
if you were non dom it's easy. director loan to the spv at a nice 10% and all your rent ever does is pay off the interest
See this is what I recall being told previously. I can see that funding the company wouldn't be too difficult I guess it will just be a case of obtaining a mortgage on a company that effectively doesn't turn a profit at that point!yammyfan said:
Thanks, I structured that question wrong. I appreciate the company would be subject to tax, not myself. I just didn't know if it would be subject to 20 percent if funds were re-invested. I have just researched it a little more and can see that it will.
The CGT tax question was focussing on if I didn't go down the LTD tax route. If I was to privately purchase a house and then sell it for a profit would I personally be subject to CGT?
Yes you would be subject to cgt. The CGT tax question was focussing on if I didn't go down the LTD tax route. If I was to privately purchase a house and then sell it for a profit would I personally be subject to CGT?
Talk to an accountant.
The general view is that rental properties are best kept personally rather than in limited companies.
However, it does depend on many factors that may be individual to the person asking the question so you need a good sit down and chat with an accountant to go through all the permutations.
The general view is that rental properties are best kept personally rather than in limited companies.
However, it does depend on many factors that may be individual to the person asking the question so you need a good sit down and chat with an accountant to go through all the permutations.
As others have said, speak to an accountant. I'm just in the midst of transferring most of my properties currently held under my personal name into a Ltd company for the very reason you've described. I don't need to extract money from the company so I would rather re-invest the income whilst paying 20% corp tax as opposed to the 45% Income tax I would be subject to otherwise. Even over a 10 year cycle - this is a massive saving.
The main downside for you might be securing lending for the property. It's quite straight-forward to get lending to a ltd co if you have a "portfolio" but I'm unsure of how individual properties would stack up in the eyes of a bank. Another downside is that you lose a bit of CGT allowance I think, but this wasn't relevant for myself so it didn't affect me - but it might you.
The main downside for you might be securing lending for the property. It's quite straight-forward to get lending to a ltd co if you have a "portfolio" but I'm unsure of how individual properties would stack up in the eyes of a bank. Another downside is that you lose a bit of CGT allowance I think, but this wasn't relevant for myself so it didn't affect me - but it might you.
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.
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.
I have sorted a meeting with an accountant for next week, so will get some more information then!
As I am not drawing on the profit's of the house/s it really does look like its going to be more beneficial for me to purchase through the ltd company, but i will let the accountant tell me what i should do.
As I am not drawing on the profit's of the house/s it really does look like its going to be more beneficial for me to purchase through the ltd company, but i will let the accountant tell me what i should do.
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