Tax Efficient Rental Property Ownership Advice

[Mike Random]

Is anybody able to offer some advice on the most tax efficient way of owning several rental properties?

Is it best to have them owned by a company or a trust?

I work offshore so would setting up an offshore company and transferring the ownership to the company help?

What are the pro's and con's to owning them on Interest only V repayment?


Thanks in advance

Mike

[Eric Mc]

Get an accountant

Your question is far too general and would require a meeting to discuss all the permutations.

Normally, my advice is to keep residential properties out of limited companies BUT when a peron is not a UK tax resident there may be other factors on which an overseas tax expert may be able to provide additional advice.

[scotal]

Do you intend borrowing to fund the rental property purchases?
You'll find the options open to you really limited by being in a limitedco. I suspect an offshore limited firm would have very very few lenders willing to consider it at all.

[Mike Random]

Thanks guys,

Eric, l have spoke to a few IFA and to ber honest l get tired of them trying to send me down a road that is most benificialy to themselves commision wise.

Finding somebody that can help with regards being offshore is also proving hard.

Thanks

Mike

[scotal]

Mike Random said:

Finding somebody that can help with regards being offshore is also proving hard.

If you mean offshore as in the firm will be offshore, then I think you'll really struggle.
If you mean offshore as in your physical location, I'll happily have a chat with you about BTL.

[Mike Random]

scotal said:

If you mean offshore as in the firm will be offshore, then I think you'll really struggle.
If you mean offshore as in your physical location, I'll happily have a chat with you about BTL.

Hi Scotal,

I work offshore. Would welcome any advise on this.

Thanks

Mike

[scotal]

Mail on its way.

[Eric Mc]

For UK tax residents, having a buy to let property in a limited company is generally not a good idea.

[groak]

Eric Mc said:

For UK tax residents, having a buy to let property in a limited company is generally not a good idea.

What makes you say that, Eric?

[Eric Mc]

groak said:

Eric Mc said:

For UK tax residents, having a buy to let property in a limited company is generally not a good idea.

What makes you say that, Eric?

I've explained this elsewhere on PH in the past but, to repeat -

a company deriving its income from rental properties cannot avail of the lower "small trading company" Corporation Tax rate - as it is an investment company rather than a trading company.

rental profits will need to be extracted from the company somehow. That COULD involve the owner of the company having to pay further tax at the point of extraction (not to mention NI)

if and when the company disposes of the property, if it makes a Capital Gain it will pay CGT at its top Corporation Tax rate. Being a company, there will be no Annual Capital Gains Tax allowance available

Further personal taxes would be paid by the individuals as they extract the gain from the company

[Mike Random]

Scot thank you,

Eric, this is the type of advice l am looking for as l am far from an expert on any of this.

Thanks

Mike

[Rambaud]

Eric Mc said:

<snip>
a company deriving its income from rental properties cannot avail of the lower "small trading company" Corporation Tax rate - as it is an investment company rather than a trading company.
<snip>

This would be an unwelcome shock to a lot of BTL investors.

However, such a company is NOT a CIHC (Close Investment Holding Company)as section 34(2)(b) CTA2010 gives specific exemption for such a company :

"...for the purpose of making investments in land, or estates or interests in land, in cases where the land is, or is intended to be, let commercially (see subsection (3))..."

Therefore the Small Profits Rate can apply (currently 20% up to £300,000).

[groak]

Rambaud said:

This would be an unwelcome shock to a lot of BTL investors.

However, such a company is NOT a CIHC (Close Investment Holding Company)as section 34(2)(b) CTA2010 gives specific exemption for such a company :

"...for the purpose of making investments in land, or estates or interests in land, in cases where the land is, or is intended to be, let commercially (see subsection (3))..."

Therefore the Small Profits Rate can apply (currently 20% up to £300,000).

Correct.

[princeperch]

has Eric just been owned in a 'tax-off'?

[Eric Mc]

Provided that was the "purpose" of the company - which in the past was set out in the articles of association. Of course, the 2006 Companies Act has changed all that.
I think the situation would need to be examined carefully for companies set up under the 1985 or earlier Companies Acts as they would have far more prosscriptive Articles of Association.

It still doesn't remove the problem of extracting the capital from the company if and when the property is disposed of, especially now that ESC C16 is gone.

[Rambaud]

I would tend to agree that most small (relatively) value BTLs do not benefit from corporate ownership.

The purpose test is crucial and applies to each discrete accounting period - as a Chartered Accountant found out when he lost a First Tier Tribunal appeal in 2011.

[Eric Mc]

My general advice to my clients, who would be all classified as "small" is to keep land and property out of a company.

I inherited a client many years ago who had been trading but then ceased trading The company continued to rent out the old business premises and that was its only income for the next ten years or so.
At that time, the old Retirement Relief was in place but the Inland Revenue (as was) pointed out to him that he could not avail of it as at the time he wound up teh company and sold the property, the company had not been actually properly trading for many years . This was in around 2000 and the company dated back to the 1960s(I think).

Edited by Eric Mc on Tuesday 14th February 12:54

[sumo69]

Rambaud said:

This would be an unwelcome shock to a lot of BTL investors.

However, such a company is NOT a CIHC (Close Investment Holding Company)as section 34(2)(b) CTA2010 gives specific exemption for such a company :

"...for the purpose of making investments in land, or estates or interests in land, in cases where the land is, or is intended to be, let commercially (see subsection (3))..."

Therefore the Small Profits Rate can apply (currently 20% up to £300,000).

100% correct.

Eric's other issues re effective double taxation on profits extraction hold good.

Indeed its VERY rare for my clients to hold rented property in ltd companies.

David

[z4chris99]

I live in the uk, however, I was under the impression, that if you lived offshore and do not pay UK tax you could have a uk holding company which owns the properties, which takes out a loan for the properties from a offshore company, then the rental income is used to pay back the loan. so all goes offshore with no tax??

would that work?

[Eric Mc]

z4chris99 said:

I live in the uk, however, I was under the impression, that if you lived offshore and do not pay UK tax you could have a uk holding company which owns the properties, which takes out a loan for the properties from a offshore company, then the rental income is used to pay back the loan. so all goes offshore with no tax??

would that work?

Rather extreme - don't you think.