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After thinking about s,24 since 2015 and looking at all the ways of mitigating it im starting to think the limited company route is probably the best way forward.
Even if the Chancellor stops the deduction of interest as a business expense, it's still better than holding in personal name because the tax rate is going to fall to just 17% and not 40 or 45.
Also you lose your personal tax allowance as well if turnover goes above £121k.
If you cant pay your bills you will go bust. If you are paying tax at just 17 per cent you are going to have a much bigger bank balance than a sole trader.
Also there are ways to get money out of the company and pay low to zero dividends tax.
For example if you move to Portugal, you pay zero tax on your dividend income.
You can pay 40k into a pension fund.
As I get older I want to be more hands off so I could afford to let a Managing Agent take over my business as a company for the simple reason that I could afford it.As a sole trader it will be less affordable.
In say 6 years time the properties held in a company could be transferred to a REIT. By then I could see how well the REIT is doing and whether the returns they offer are good enough to make the switch.REITS are 100 per cent hands off and I find that very appealing.
Transferring my properties to a limited company and using a managing agent is a reasonable middle ground.
Limited companies also seemto be good at IHT avoidance.Apparently you can issue a new class of shares and transfer them to beneficiaries and any capital growth falls outside your estate.
Limited companies appear to be not so good if you want to sell as the CGT liability appears to be more severe than holding in personal name.This is another reason why the REIT is a good option as there is no CGT to pay if s.162 can be claimed.
Holding property in your personal name means cashflow will be very tight.Landlords will inevitably stop maintaing their properties because they wont have the cash to pay for it.
I'm no Accountant so interested to hear what you all think.
I don't understand the last bit. Repairs are tax deductible so there is every incentive to do them as quickly as possible regardless of whether they are held in personal name or not.Also although you can't pay own name property income into a pension, you can pay more of any other non-investment income into your pension instead to make up for that. If you might want to live in the property one day, it's much easier if held in own name.
You are right that repairs are tax deductible but if you know that you will face a large tax bill you have to find the money from some where..
If you spend £10k on repairs you get say 40% relief.So your tax bill goes down by £4k.
If you dont do the repair you have £10k to cover the tax bill.That is an extra £6k to cover the tax.
I'm just a little BRT landlord with 1 unencumbered property, soon to be sold to purchase 2. For all the reasons you have stated, not relating to income tax, the company format offers many advantages.
A good teacher must know the rules; a good pupil, the exceptions.
Martin H. Fischer
If the profits stay in the Ltd Co to re-invest/buy further properties, there is only the corporation tax to pay.
I have always said you need more reason than S24 to move Property into a company
The company formation has some good points succession planning pension planning etc but the issue comes on how to extract the profits
If you already own Property and you sell it to your company all costs of purchase and sale are to be paid
I like a company formation - for me it ticks all the boxes but some may be better paying down debt and getting a better mortgage deal
i use every strategy today both in my own name and via my company
Not one size fits all ...
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.
Well said, it all depends on current and future strategy.
Director of Tax Peplows Limited
CTA ACA FCCA
Here I have modelled owning a BTL property via a LTD company vs Personal and the Tax figures are staggering (7K tax saving per year - that too on ONE property)....appreciate this is not the entire picture as if I were to draw down on the profits from the LTD company via dividends then the net taxation would be higher - in my case, I do NOT need to draw down from a LTD company and any profit could be used to reinvest in the business.
Lets say your profit for the year is 50k in a company and you have no other income.You would pay tax of 11498.75. So take home pay woud be £38501. Your effective tax rate is 22%
So getting dividends out of the company will cost you 22% in tax.
This seems better than staying as a sole trader, not being able to deduct interest costs and losing personal tax allowance.
If you are going to spend your life in property you need to make sure the tax man does not get it when you die.Companies are really good at IHT avoidance.This to me is the cherry on the cake.