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I am planning on setting up a Ltd company in order to purchase any new properties as based on my calculations and future plans this may be the most tax efficient position for me.
The plan would be to transfer this over to my children in the future.
* A) Shares that have the right to capital (ie, owned property), but no income or management rights
* (B) Shares that have rights to income, but no capital or management rights
* © Shares that have management rights, but no rights to income or capital
Would this breakdown of share classes be appropriate?
Would it be better to do it from the outset or as I would initially own all the shares would it be better to separate it down later?
Would this type of structure make it difficult to get a mortgage?
Is there a better alternative?
Buying BTLs through a limited company, especially as a vehicle to pass the business on to your children, is the most tax inefficient way possible.
I've posted extensively here and elsewhere about this 'urban myth'; but if you don't mind paying pretty much every tax known to man, you or your children won't ever need the income, and are happy for them to fork out 40% inheritance tax, then be my guest.
Far better to seek specialist advice from accredited and indemnified professionals.
Sorry to be so direct Sian, but we see this 'buy through a limited company is the best way to deal with S24' nonsense every day, and after speaking with thousands of people have yet to find one for whom it makes sense.
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If you want to pass down to your children a company may not be the only way
you can insurer your life aginst death and. Let the life company pay your tax bill
it’s far cheaper than setting up a company if you don’t have too
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
Yes DL - Whole of Life Insurance (set up in Trust) is one method of IHT mitigation - but not everyone is insurable - and even those who are eligible for standard rates acceptance may find even today's competitive rates too costly even in short term let alone over future decades.
A further complication is that initial sum insured would need to anticipate future inflation on the IHT liability.
Raw mortality rate over 12 months at age 61 is around 4 per mille (£4 pa premium per £1000 sum insured) and by age 82 is around 32 per mille.
So a WL policy effected at age 61 would have a rate around 18 per mille pa plus expenses. The later the start date the higher the annual premium - as well as far higher risk of declinature or rating up of premium due to health issues.
If the initial IHT liability is say £1 million and you anticipate property quadrupling in value over next 20 odd yrs you need an initial sum insured of say £4 million - with annual premium for a 61 yr old being circa £72000 pa or £6000 pcm - or over £1.5 million in premiums by age 82. Some WL covers are arranged so that premiums cease at age 80 but cover continues indefinitely thereafter.
I mentioned it as an option
it can be helpful in some cases but as you have shown it has down sides
I think gifting property is a good way to pass down wealth I know it’s part of my plans as long as you don’t need the income and it’s Mortgag free
Can you claim that insurance as a business expense
I don’t think
I believe if you claim it the proceeds are taxable
I personally pay my premiums out of my personal account for that reason
A 'relevant life policy' can work for this
Director of Tax Peplows Limited
CTA ACA FCCA
The first point is that you will get very mixed advice on whether to incorporate or not. There is no straightforward answer and it can be difficult to differentiate between advice and opinion!
I had an almost identical plan to yours and I believe it could work. However, as I wasn't entirely sure I've paid for the services of the best tax adviser I could afford (not accountant!). Having gone through the possible options of sole trader, trust, and partnership, incorporation was still a viable and best option. My priority was not tax mitigation but legal separation of my assets, and as you're posting in the legal tribe this may be a consideration for you. It also happens to be very tax efficient in my situation.
Following this advice it was recommended that I could simply allocate 99 A shares to my daughter that would have the right to capital and retain just 1 B share for myself with the right to income and control. This can easily be changed in the future if I choose. If you're intending to allocate different share types to different children it may not be suitable.
Above all, pay for some qualified advice on your options.
Can I ask which tax adviser you used