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  • Tax

    Building holding in company

    Need some help!
    I've recently bought an HMO and formed a limited company to manage it through.
    The deposit for the mortgage I have paid in from my own savings,

    So question 1: can I withdraw that deposit amount at any time, subject to available funds in the company, with no tax liability to myself or the company?

    And then the second question, if the above is true then can I withdraw the 4k directors dividend (we have two directors, myself and my wife) and then immediately reinvest I back in the company each year. Aim would be to then pay down the mortgage. This would then, over time, increase our holding in the company, which if the above is true we can then withdraw without tax liability years from now.

    Not sure if my theory holds, can anyone help please?

    Cheers

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    Read HMRC's dividend tax data

    Nil rate band is now just £2000 pa  - excess being taxed at 7.5%/32.5%/38.10% as you move thro tax bands

    That is after the Company has paid 19% Corp Tax on any profit

    Overall any Director who pays 40% tax is then left with just 54.675% of any Company profit removed from Company/74.925% for standard rates taxpayer - both for excess over the £2000 nil rate band

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    Thanks for the advice.

    I think I've still got the questions though.
    There are two directors so we have the 2k each, hence my 4k total.

    The withdrawal I'm referring to is not the profits, but the initial deposit. Do I have any personal tax liability on that original investment should I choose to withdraw it, say I sell the house?

    And then if I choose to reinvest the dividends, do they then accumulate as a tax free amount?

    HMRC web pages are unclear on this.

    Thanks

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    hi you have outlined why I will not buy BTL with leverage

    its far to highly taxed to even bother

    in a company  I pay over 40%

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    Learn Change and Adapt ?????


    Once £4k divs extracted they are yours to spend as you please - as is yr net wage

    Ditto if you sell property and dissolve Company

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    I don't think I'm getting my questions across right

    1) Is the initial deposit I made into the company able to be withdrawn tax free to myself?

    2) if I put more money into the company can I withdraw that with no tax liability to myself?
    In this case the 4k dividends from the company, accumulated over the life of the investment.

    Thanks for your perseverance to help me understand

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    How exactly could you withdraw the property deposit without selling or remortgaging?

    Latter would mean needing a Company remortgage - where there may be fewer lenders at higher rates/fees

    Have you yet bought a BTL property?

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    One way or another all Directors will remain jointly and severally liable for any property mortgage - even if Company remortgages after setting up the deal - and all loans will mandate a min deposit percentage

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    Yes that's right.
    We have a mortgage already in place. 
    So assuming we sell the property in ten years time we would have a cash surplus.
    Of this, 75000, is the amount we originally invested. Therefore at this point we may want to withdraw funds from the limited company.

    My assumption is that as we invested the 75000 we can take this out without personal income tax liability.

    Additional anything we reinvest, in this case the dividends of 4k, would also become personal tax free.

    The advantage being that if we don't draw the 4k each year we would lose the tax free allowance.

    It would be a case of withdrawing and then immediately paying back in to then be used to pay off the mortgage above the company's current payments.

    Over ten years this would accumulate to 40k. Not a massive benefit but with us both at higher rate is worth it.

    This would take our 78k + 40k to 118k

    But I'm not sure if this is accurate and wondered if anyone had experience of this

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    Selling property in say 10 yrs assuming a profit would mean CGT based on difference between buy/sell prices

    High leverage is great in a rising market and financial suicide in falling markets - viz 1929/32

    Check your plans with Acct - and remember today's rules can change any time

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    The directors loan can be paid back tax free (either as lump sum or instalments) and with interest once the company has settled all expenses and corporation tax liabilities annually.

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