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Excuse me if this specific scenario has been discussed before. I currently I have no btl properties but will be purchasing my first in the next few months and plan to have 5 or 6 within a year or two with these providing my primary income.Before Section 24 I had planned to leverage heavily personally but that plan is now scuppered in my mind. I have reasonably substantial personal investments from a business sale and therefore will be able to personally borrow against those investments at a rate far lower than a mortgsge (Lombard facility).I will be speaking to my accountant for formal advice but the informal suggestion from one of my bankers was to setup a Ltd company purely for property investments and then loan the company (as a directors loan) the funds to purchase the properties (so the company would not be looking to obtain mortgages).The company will then pay Corp tax on the profits (20% dropping to 18%) and I can effectively take my income in the form of directors loan repayments free of tax.I know there are issues to consider when disposing of properties etc but this would be a long term investment to generate my personal income and would be something I can pass over to kids x years down the line, I wouldn't be looking to do anything other than buy and let. Any glaringly obvious show stoppers in this scenario and does the Ltd company route seem sound?
Thanks in advance.
Given it's role in your inheritance planning, think about how you set the company up from day 1.
Does it, for instance, make sense for shares to be given to heirs immediately?
If the company is going to be in debt to you and you are going to be in debt under the Lombard facility, does it make sense to address this (from an inheritance perspective) with some sort of life insurance in trust arrangement or similar?
Dont forget when you have a Directors Loan you will pay not Tax when your company pays you back
But your Company will have to pay Corp Tax before you get the hands on your cash
So Its tax free to you
But Taxable to the company
I had the same converstion with my accountants it can be miss leading
I belive the Company route is the only way to go best of luck
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, I will take iht advice although I have no kids at the moment so really just thinking ahead as to what would happen to the company when I go. Corp tax would be more favourable than income tax on the income taken each year.
Thanks for confirming I'm on the right track. I have a meeting with my accountant next week. I just want to make sure I'm doing this in the best way from day 1.
it sound proper what you are planning to structure, I have a similar set up, but I also leverage with the Limited (Property/Investment), and I also "loan" money (undistributed dividend) from a (Business/Trading) Limited to the (Property/Investiment) Limited.
I also pay pension contribution into my SIPP (tax deducatble up to £ 40K per year), and I used my SIPP to buy two commercial property, and hopefully the third one end/2017 or 2018 - and I have mix/residential that are partially own buy my SIPP and the rest (residential) by my Limited.
I am also setting up an holding company for taking a 33% on a newly set-up Development company with two other business partner, we are working on a substantial JV with an owner of 3 sites.
There are a lot of things that can be done legally to optimes tax and IHT situation, simply via Limited and onshore entity.
If you live in London and you want to catch up for a coffee sometime, send me a private message.
You will keep a simple loan book for the directors loan, capital in / capital out, the capital repayments from the company to you (personally), you will pay no tax on.
The interest however, that you charge on the loan to the company, for the company it is an expense and is tax deducatable for the company.
When this interest is paid to you by the company, you will pay tax on it, it will need to be declared on your Self Assessment as income and tax paid on it as your personal income which maybe 40% depending on your income level.
Although interest does not have to be charged, it is something worth considering
I think I am right that every one is allowed £1500 a year tax free from intrest payment the amount maybe wrong ??
Almost right DL
It is £1k for basic rate tax payers, £500 for higer rate and £0 for additional rate
Every quarter in which interest is paid on the loan, a CT61 needs to be sent to HMRC. You need to deduct basic rate income tax from the payment which should be paid to HMRC.
As you are resident/domiciled abroad, would/could any tax you pay on interest on the loan you made be taxable abroad and not in the UK? I am resident in a country where you are not taxed on overseas income, so if I charge interest on a loan I made to my UK company would it be 'tax free'?