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  • Tax

    Company Deposits Tax Free over 55s

    I have been running an idea around my head for a couple of days and would like your views

    Generating deposits can be quite Taxing

    to save 25% deposit for each purchase can be a bit of a struggle

    So I have come up with this strategy

    You will need a certain amount of cashflow to do this and you would need to be over 55 and a company director and a higher rate tax payer and most likely a Northern Landlord

    The first goal is to create a bundle of Tax Free Cash and I will use 20K as that goal

    Your Company would fund your directors pension with all its advantages Nil Corp Tax  using the Pension rules to help with IHT Tax Planning

    Your Company would fund you Directors pension to the Max of 40k per year

    After two years of making contributions you than take you Tax Free Lump sum 25% of the 80k Fund and you leave the 75% of the fund alone to avoid IHT

    You then buy a three bed house with a 75% mortgage via the company with the 20k

    In the NE you can purchase an 80K property with a income of £600 which is a yield of over 8%

    The company would then have a positive cash flow of around £250 to £350 a month

    so that's the strategy it helps with IHT and gives you an extra pension if you want one

    There is no tax to pay and you have generated £3600 a year for the company

    I fully understand 40k a year is for a  wealthy Landlord but I think this strategy would help a 40% or 45%  Tax payer - and they have to be over 55.

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    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.

    And how will this work if you are below 55? Smile

    I know it will not work, however if you finds a smart way, please let me know

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    sorry I cant help you there Graa

    But I have just thought of another plus on this

    The director will have loaned the company the deposit via a directors loan

    The company could than pay back the Loan and the director has no tax to pay

    the company would have a tax liability of 19% on the money it pays back

    But that is better than 40% or 45%


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    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.


    Hi dislexic_landlord

    The other issue with your suggestion is that it is a one hit plan.  The reason being that once you have taken your tax free 25% you are then limited to being able to only pay £3,600 gross (£2,880 net of basic rate tax) into your pension scheme.  Whilst this will have saved you corporation tax in the short-run it will have damaged your future use of pensions for tax and investment planning.  A better solution would be to accept paying corporation tax on the money you need as a deposit ( and if need be setup a group company to hold the property through) and then pay money into a pension fund as a separate tax free investment to produce income in the future and possibly also as tax free IHT planning.

    It is important - even at over 55 - to keep your tax and investment options open.

    Regards Nigel

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    Nigel Reynolds FCCA CMgr FCMI

    Property Tax Specialist

    Reynolds and Co

    http://www.reynoldsandco.co.uk


    Hi Nigel

    You not quite right

    With a Pension as long as you don't touch the Taxable element of the fund ie only take 25% tax free You can still invest another 40k a year up to age 75

    so this can be done over and over again

    If you do touch the Taxable Part of the Pension you are then restricted to 4k a year

    I have just had a chat with my IFA and he confirms what I thought

    Tax Free deposits and ring-fenced funds from IHT if you pass before 75

    and even after 75 If the fund was passed  to grandchildren they can take an income and only pay there own rate of income tax at the time on the income

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    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.


    Hi Dislexic_landlord

    Interesting what your IFA says because on HMRC's site they have the following:

    You can take up to 25% of the money built up in your pension as a tax-free lump sum. You’ll then have 6 months to start taking the remaining 75%, which you’ll usually pay tax on.

    On the basis of the above you would only have 6 months rather than until your 75 for the remainder of your fund to grow.

    Regards Nigel

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    Nigel Reynolds FCCA CMgr FCMI

    Property Tax Specialist

    Reynolds and Co

    http://www.reynoldsandco.co.uk


    No you don't have to take a pension its up to the investor

    under pension freedom

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    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.


    Oops looks like HMRC have a mistake on their web site.

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    Nigel Reynolds FCCA CMgr FCMI

    Property Tax Specialist

    Reynolds and Co

    http://www.reynoldsandco.co.uk


    lol am I surprised Not

    The more I roll with this the better it looks to be honest

    Its quite tax efficient  for a Higher Rate Tax Payer

    the only tax I could see being due would be the Corp tax when the directors loan is repaid

    I could live with 19%


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    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.


    Its not the only one. It looks like they often forget to keep sites up to date.

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