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Our eyes are still watering from having paid vastly bigger tax bill due to S24 and not able to claim Wear and tear allowance. We're looking at our options to reduce tax going forward.
Options seem to be:
1) to form management company - not sure how this would work. Can anyone please explain?
2) form Ltd Co - seems to be conflicting advice about whether CGT and SDLT would be payable. If they are then I can't see it being worth going this route. Others say CGT can be delayed by 1st proving we're operating as a 'business' then applying for Incorporation Relief. And some say SDLT can be avoided by transferring beneficial interest into the company, ie Schedule 15 of the Finance Act 2003. Some accountants seem not be aware of these strategies and say both would be payable.
What are the typical costs involved with forming either companies and ongoing costs?
I'd be really interested to hear how other landlords are operating.
BTW, portfolio consists of 16 properties, 5 of which are HMO's, profits split 50/50 with my wife. I also manage 2 other properties for other landlords.
HI Pete.Welcome to the Section 24 party!These previous threads address the issues you've asked about:Resources for reducing landlord tax liability The BIG tax issue: Should I incorporate?Moving property to LTD company Forming a company with Buy To Lets My first Year as a Director of a company Hope those links help for starters?We can only talk generally on the forum because tax advice should be bespoke to you and your personal situation. You would be advised to seek professional guidance on how to structure your property holdings in a tax efficient manner. Our tax partner, Rental Income Tax Advisors (or RITA for short) would be pleased to assist you.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
If you are paying more tax now because of s24 then someone is lying to you. Section 24 does not start to be phased in until 6 April 2018 so you won't see any change in payments until January 2019 and the full impact won't be in p[lace until the payment for January 2022.
'Section 24 does not start to be phased in until 6 April 2018...'
ARE YOU SURE THATS CORRECT? IT SEEMS NOT TO SIT WITH:
This measure will restrict relief for finance costs on residential properties to the basic rate of Income Tax. This will be introduced gradually from 6 April 2017.
Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
Landlords will be able to obtain relief as follows:
Aha - well spotted Nigel Quite right, I'm in the frame of mind as if it's happened already. Tax next year will increase by approx £1,120, and it's only going to get worse!
Hence my post. Thanks Vanessa, will digest those articles over the next few days and come back with more questions no doubt..........
Hi Pete the one thing I have learned about s24 is no two Landlords are the same
Your question's need to be directed to a Tax Advisor who can work with you for the best outcome for yourself
Learn Change and Adapt ?????
I'm in a similar position as you and have found out that trying to transfer my private portfolio in to a ltd company would be initially far too costly and carries no guarantee that things won't change in the future with the government.
After taking advice I've set up a ltd company which manages a property owned by someone else and my portfolio as I manage the properties myself and any furture buy to let's will be bought through the Ltd company. This will reduce your private tax bill a little but the extra money in the lrd company needs to stay in the Ltd company to buy more properties as if you take it out as drawings you'll be back where you started.
Basically are private portfolios are now stuffed due to S24, all we can do is try and limit the amount of tax we pay by coming up with legal loopholes etc.... but trying to transfer or finding a way of getting out of paying increased tax bills is extremely doubtful, this of course is what the intention is by the government.
On a plus side interest rates are still low and my latest renewals have seem my profits increase along with some rent increases. I'm just making sure I put money aside for an increased tax bill when it comes!
Hope this helps.
Extra money in the ltd company needs to stay in the Ltd company to buy more properties as if you take it out as drawings you'll be back where you started.
You so correct
I have formed a company and I have done what I call the Landlord Shuffle into a Ltd Co
But its not the Golden Bullet some think it is
I did it for Three main reasons
One I could pay my wife an income from the Company ?
Two I could fund my Directors Pension
Three for succession planning
I really believe the great Golden days for BTL are over
But I am sticking with it and using every thing I can to save as much tax as possible legally
every one of us are so different but if you look at your investments and understand what's going to happen your over 50% of the way to dealing with it
The next 20 years will be nothing like the past 20 years we will not see the capital growth which is a huge factor.
This will reduce your private tax bill a little but the extra money in the lrd company needs to stay in the Ltd company to buy more properties as if you take it out as drawings you'll be back where you started.
Not quite. You can take some money out tax efficiently depending on you circumstances.
I started buying using a company, and plan to use those methods. I am over 55 but will only be able to pay £4k into a pension as I plan to start drawing on it, but with a salary and a small dividend that should cover all the companies profits for a while. First though I will repay the loans I made to the company for the deposits. Actually even before that I will buy another property to get the profits up to that level - currently the company has just two properties.
You are correct Peter although for me I could only benefit from the £2000 in dividends as I already pay 40% tax. I'm only 44 years old and I'm not interested in putting the money away for a pension as I'd rather buy more properties. This is where it differs from person to person as we all have different needs and demands and possibly other incomes that need to be considered.
There's not one simple answer unfortunately, so I urge everyone to take tax advice from specialist.
You are right the 2k dividend allowance is not helpful if your a 40% tax payer
its a token nothing more in real terms