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  • Tax

    Benefits of limited company for property

    Hola peeps!

    Quite new to PT (though I have been busy on the forums for a while) and I must say its one of the most informative and friendly communities for property I have ever come across. My question is related to - Benefits of a limited company for a new property investment business. I know many have submitted similar posts however I wasnt sure if its right to highjack a thread hence I am writing a new one.

    My situation - I own a BTL at present and looking to expand my portfolio and considering HMO's, Student Lets, Flips and Service Accommodation as my strategy.  Whatever presents itself as the best opportunity. Before I purchase my next property, should I open a LTD company or LLP or neither? I wont be transferring my current BTL for obvious reasons however I am looking for a long term solution as I wish to grow my portfolio. My goal for the next 5 years is to own 3-5 properties and then increase it further. If I look to invest outside London I may be able to fund some of the purchase via liquid assets and cash. Rather than me give more details on my plans, what I am looking to gain etc;

    1. Would it be possible to get a list of benefits and a few disadvantages/risks of incorporating? 

    2. Would I have to pay corporation tax and income tax?

    3. How would banks look at lending to a newly formed company? I understand banks do not lend for serviced accommodation? Is this true? Can I avail commercial lending?

    4. What is the average cost of a property tax specialist/accountant for detailed consultation? Not looking for a face to face meeting, phones and email support will suffice. 

    I have done some research (very confusing) and only looking to see what the experts think and for some pointers? Thank you all in advance.

    Best

    Kay

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    Hi Kay and welcome.

    Thank you for your kind comments about Property Tribes. Smile

    A good starting point is the below thread.  It has resources that will address many of your questions:

    Resources for reducing landlord tax liability

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    Thanks Vanessa! Quite a lot of information to grasp. Are you allowed to recommend any tax experts I could speak to?

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    There is no difference in owning mortgaged property in a company than owning it your self

    The Day to day running is identical

    You Guarantee the Mortgage either way

    the main difference is how its Taxed

    If you own a property in your name you do a self assessment  on a profit and loss basis and pay tax at 20% 40% and 45%

    If you own it via a company you become the managing director

    The company makes  a profit and the company pays Corp Tax 19%

    If you take a dividend of the following on top of Corp Tax

    Tax bandTax rate on dividends over £2000
    Basic rate7.5%
    Higher rate32.5%
    Additional rate

    38.1%

    If you take a salary you will pay Income Tax  and NI

    and the company will pay NI

    The only difference in BTL is if its in your name there is

    Tax restrictions on Interest

    You have to take expert advice from a tax advisor

    But which ever way you go the Tax man will get you in the end

    If you go either way and you want to make a living of over 46k a year you will pay around 50% Tax on profits in round figs.

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    Learn Change and Adapt ?????


    Thanks dislexic_landlord, very informative. Helps me get a good idea of things. I already cross the higher rate threshold on my main job so I definitely need to look into this before taking the next step! I don't mind the tax man getting me however do need to figure out the most efficient way to go about this!

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    If that's the case and you stay a HRT in your Job

    It has to be a Company

    If you want to extract profits your going to pay around 50%

    best of luck

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    Learn Change and Adapt ?????

    Can you see the banners saying Rita 4 Rent?

    Higher rate tax payer needs advice on plans.

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    Hibernating....

    wisdom involves an integration of knowledge, experience, and deep understanding that incorporates tolerance for the uncertainties of life as well as its ups and downs.


    Indeed...have emailed them. Usually get up to 3 quotes as with everything Smile

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    Hi Kay

    As a higher rate tax payer the limited company route is the only way to go, stay away from LLP's.

    I get the feeling you are looking at building a reasonably big portfolio and when you sell the properties you would pay corporation tax at the rate at that time, the rest of the money stays in the business as retained profits and you get to choose how you distribute your retained profits (I call it your net pension fund - which you control).

    You only receive £2,000 of your income via the company tax free, if personally you pay 40-45%.

    After that, the dividend rate is 32.5% up to £150,000 within a company, personally 40%, if your over £100,000 you lose some of your personal allowance depending on how much over you go so extra personal tax there as well on your other income.

    The dividend rate over £150,000 is 38.1% for company, compared with 45% personally

    You can deduct your mortgage interest with a company and if you strategically play around with your personal income, you can also pay no corp tax and increase your pension fund.  I assume you already pay into a pension, if you are making good profits, you may not need to pay into your pension personally, which frees up employment/self employed income.

    Some people talk about the stamp duty, its a fact you have to pay it if the value is within the limits to pay, but either way you can offset it against the sale price when you sell and benefit from mortgage interest relief for the life of the property until sold.

    Good luck

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    Wayne Ashcroft

    Accountant | Wayne Ashcroft Limited

    Tel: 07828 882400 | Email: wayneashcroft69@outlook.com


    I agree 100% with your views

    There has never been a more important time to use Pensions

    Infact its part of my major strategy to combat S24 and to remove profits from my company


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    Learn Change and Adapt ?????

    Thank you for your detailed response. Much appreciated. I work in the public sector and only have a pension with my employer (which is really good) but I do have the option of AVC's. 

    Re "You only receive £2,000 of your income via the company tax free, if personally you pay 40-45%" - This is annually I take it? Example - If the company was to make £2000/month net profit i.e. £24,000 annually am I correct in saying I have to pay 32.5% tax on £22,000? Are dividends the most efficient way to bring you an income from the business?

    I am just trying to get an idea and some figures to see if my plans are going to make me some passive/extra income as eventually I would like to give up my day job (don't we all!!!) or take up consulting/contracting however if the reality is different I need to think carefully before getting into this!

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