Contracting and BTL

[GR_TVR]

I've been mulling over a short term idea for the next couple of years or so and wanted to see if it would work from a hypothetical sense.

In short - the plan is to run a ltd company, which will receive revenue through contracting work that I undertake. This revenue will be used to purchase BTL properties.

Is it possible to use this revenue to directly purchase BTL (probably with a mortgage as well)?

Finer details can be ironed out later, such as whether to use further companies for buying each property and loaning the money, or any potential impact of IR35.
I'm just keen to know whether this is a plausible strategy as, if so, I imagine it will dramatically reduce potential tax exposure.

Thanks

[Sarnie]

If you need mortgages then the Ltd company needs to be set up solely for the purchase and letting property....not contracting.

[UpTheIron]

GR_TVR said:

I've been mulling over a short term idea for the next couple of years or so and wanted to see if it would work from a hypothetical sense.

In short - the plan is to run a ltd company, which will receive revenue through contracting work that I undertake. This revenue will be used to purchase BTL properties.

Is it possible to use this revenue to directly purchase BTL (probably with a mortgage as well)?

Finer details can be ironed out later, such as whether to use further companies for buying each property and loaning the money, or any potential impact of IR35.
I'm just keen to know whether this is a plausible strategy as, if so, I imagine it will dramatically reduce potential tax exposure.

Thanks

As (I am guessing) you are sole director and shareholder you can invest your company reserves however you see fit. I would not describe what you are proposing as "short term" though.

Some things to consider (specific to your suggestion rather than general BTL):
1. If your contract is IR35 caught then the company won't have the cash.
2. If you need to borrow funds then you will need an SPV or similar.
3. You will pay Corporation Tax on the profit from your contracting activities, you can't offset this against BTL costs. You will also pay CT on your rental income.
4. You will pay tax on dividends.
5. What is your exit strategy? CGT.
6. No ER available if you fail the relevant tests.

IMHO it does not reduce tax exposure, but it does give you more options to mitigate it. It is something I have mulled over several times, and the recently proposed changes to Lettings Relief mean I will be revisiting the issue before April 2020 depending upon my employment status at the time, however last time I looked it wasn't worth the overhead. YMMV.

[GR_TVR]

UpTheIron said:

s (I am guessing) you are sole director and shareholder you can invest your company reserves however you see fit. I would not describe what you are proposing as "short term" though.

Some things to consider (specific to your suggestion rather than general BTL):
1. If your contract is IR35 caught then the company won't have the cash.
2. If you need to borrow funds then you will need an SPV or similar.
3. You will pay Corporation Tax on the profit from your contracting activities, you can't offset this against BTL costs. You will also pay CT on your rental income.
4. You will pay tax on dividends.
5. What is your exit strategy? CGT.
6. No ER available if you fail the relevant tests.

IMHO it does not reduce tax exposure, but it does give you more options to mitigate it. It is something I have mulled over several times, and the recently proposed changes to Lettings Relief mean I will be revisiting the issue before April 2020 depending upon my employment status at the time, however last time I looked it wasn't worth the overhead. YMMV.

Thanks for the reply. By short term I meant the contracting part, not the BTL.

1. One to bear in mind. I'd expect to (for example) use my own equipment and be able to work from my home office on occasion so would hopefully have some ammunition against it.
2. OK, assume this is what Sarnie is talking about above. Doesn't seem to be an issue - assume I can just lend funds between companies?
3. So as I understand this I'd pay CT on the contracting profit prior to being able to invest it in BTL - so I can't loan the BTL company the money pre CT?
4. Understood, assume at the usual rates over the £2k allowance.
5. Strategy is to hold the properties long term - forming part of retirement income.
6. Understood.

Some interesting points and plenty to research. I'll continue to look into it and draw up some example spreadsheets of various options including ltd vs personal etc etc.

Thanks!

[Mortgage_tom]

GR_TVR said:

2. OK, assume this is what Sarnie is talking about above. Doesn't seem to be an issue - assume I can just lend funds between companies?!

Yes, thats generally what people do. But you will need to speak to your accountant about the specifics.