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?
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?
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?
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!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.
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.
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.
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?
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