Buying BTL through Company

[dogz]

I’m thinking of going contracting and am keen to understand if my logic is correct on how this might also help purchasing BTL properties. Currently for every £1 I earn, I get back £0.55 excluding NI

My thinking is through a limited company, I will need to pay corporation tax on the company’s earnings (19%), far lower than personal tax. So each £1 generates the company £0.81. Can I then create an intercompany loan to a property company I setup on a 0% interest rate? To do this does the money have to repaid back at any point to avoid any tax implications?

My thought process is that it’s going to far quicker to build up deposits using this method.

I’m well aware if I take money out of either of the companies it will be taxed as dividend income

Just want to make sure I’m not missing anything obvious

[markiii]

can you not just use the same company and keep it simple?

[rustyuk]

Unless your contacting occupation is property then you will need two Ltd companies.

When I looked into this getting a buy to let mortgage was more exspensive than the normal personal route.

Also, the government seem hell bent on stopping contracting.

[dogz]

I’m aware of the IR35 implications and the need to setup an SPV

I also have a number of personal BTLs which is starting to mean finding a lender is becoming more difficult if I purchase directly

I guess I see this route as a win / win

Thanks

[Eric Mc]

dogz said:

I guess I see this route as a win / win

Thanks

Why?

[dogz]

1) deposit can be built up quicker
2) rate of tax paid is less if kept in company
3) getting more difficult to get a btl mortgage should be easier through company although fees and rates marginally higher

[Eric Mc]

dogz said:

1) deposit can be built up quicker
2) rate of tax paid is less if kept in company
3) getting more difficult to get a btl mortgage should be easier through company although fees and rates marginally higher

Whatever about 1 and 2, the rate of tax paid by the company on its rental profits (if there are any profits) will indeed be lower than what you might pay if it was subject to Income Tax.

The downside comes with the Capital Gains situation when the property is disposed of. You could end up with double taxation on the disposal (Corporation Tax and personal Capital Gains Tax) so be very, very careful before committing to this course of action.

Also, companies do not get the individual Personal Capital Gains tax allowance, which is a very useful relief - especially if the property is owned by more than one individual.

Putting an investment property into a "trading company"£ can have a detrimental effect on a future Entrepreneur's Relief claim later.

[shopper150]

Eric Mc said:

Whatever about 1 and 2, the rate of tax paid by the company on its rental profits (if there are any profits) will indeed be lower than what you might pay if it was subject to Income Tax.

The downside comes with the Capital Gains situation when the property is disposed of. You could end up with double taxation on the disposal (Corporation Tax and personal Capital Gains Tax) so be very, very careful before committing to this course of action.

Also, companies do not get the individual Personal Capital Gains tax allowance, which is a very useful relief - especially if the property is owned by more than one individual.

Putting an investment property into a "trading company"£ can have a detrimental effect on a future Entrepreneur's Relief claim later.

The advantage is you can stagger your withdrawal from the company over a number of years depending on your personal tax situation. This might be useful with reduce the overall tax rate.

[Eric Mc]

shopper150 said:

The advantage is you can stagger your withdrawal from the company over a number of years depending on your personal tax situation. This might be useful with reduce the overall tax rate.

By extracting dividends?

Which as you no doubt know, are now taxed in a very different way to the way they used to be and offer nothing like the tax savings that you used to be able to obtain.

[JulianPH]

Eric Mc said:

shopper150 said:

The advantage is you can stagger your withdrawal from the company over a number of years depending on your personal tax situation. This might be useful with reduce the overall tax rate.

By extracting dividends?

Which as you no doubt know, are now taxed in a very different way to the way they used to be and offer nothing like the tax savings that you used to be able to obtain.

Tell me about it! The current government seems to do everything it can to alienate its core voters.

Thanks for your comment on that other thread BTW, after mixing things up (getting them wrong!) so badly I really appreciated that.

[Eric Mc]

Don't mention it. Graciousness in admitting a mistake should always be recognised. Not everyone on PH is good at it.

[dogz]

Eric Mc said:

Whatever about 1 and 2, the rate of tax paid by the company on its rental profits (if there are any profits) will indeed be lower than what you might pay if it was subject to Income Tax.

The downside comes with the Capital Gains situation when the property is disposed of. You could end up with double taxation on the disposal (Corporation Tax and personal Capital Gains Tax) so be very, very careful before committing to this course of action.

Also, companies do not get the individual Personal Capital Gains tax allowance, which is a very useful relief - especially if the property is owned by more than one individual.

Putting an investment property into a "trading company"£ can have a detrimental effect on a future Entrepreneur's Relief claim later.

Hi Eric,

Could you explain your double taxation point? I get their isn't any capital gain tax relief on disposal through a company which I'm fine with but how could a corporation tax and personal capital gains tax liability arise?

I'd also be interested in understanding more on the Entrepreneur's relief

My current situation is that I have 9 BTL's in my name. After 10 it gets harder to start sorting finance. My view is to sell no properties unless something radically changes the outlook for the property(s).

When I pop off, I'm looking to put my properties / company properties into a trust for my 2 children to enjoy the income from

Thanks

[Eric Mc]

dogz said:

Hi Eric,

Could you explain your double taxation point? I get their isn't any capital gain tax relief on disposal through a company which I'm fine with but how could a corporation tax and personal capital gains tax liability arise?

I'd also be interested in understanding more on the Entrepreneur's relief

My current situation is that I have 9 BTL's in my name. After 10 it gets harder to start sorting finance. My view is to sell no properties unless something radically changes the outlook for the property(s).

When I pop off, I'm looking to put my properties / company properties into a trust for my 2 children to enjoy the income from

Thanks

Company sells property. Company makes a Capital Gain on the disposal of the property,. Company liable to CGT (at Corporation Tax rates) on the gain.

Money now sitting in company bank account.

Director wants to get his hands on that money. Whatever way he goes about extracting that cash, he will pay either Income Tax or Capital Gains Tax at the point.

So, the disposal of the property has resulted in two taxation events - one for the company and another for the director/shareholder.

Obviously, if you don't extract the cash for yourself, then no further taxation would arise.

If you are intending to set up a trust as a tax shelter to avoid such things as CGT or Inheritance Tax, that is a whole order of magnitude more complex and needs very good (and expensive) professional advice.


Whether you need to set up a limited company to own the property which you intend to shelter it in a trust as well is open to debate.

There could be a tax event if the shares in the company which owned the property was transferred into a trust.

Watch out also for Stamp Duty rules.

Edited by Eric Mc on Sunday 15th July 17:03

[dogz]

Thanks for the advice - really informative!!

[kurt535]

have just purchased another project through my company. as im in the fortunate position to pay cash for my projects, company buying makes the most sense. in general terms, the govt is closing down benefits of plc vs self employed but, one major advantage for me is generating expenses YoY against profits i make on a development meaning overall, my tax bill is a lot lower rather than paying out in one annual lump as a self employed person.

[oldwolflong]

Nice.