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I have just opened up a SPV Limited Co as I thought it would benefit me in the long run as I build up my portfolio.I have done a quite a bit of research on using a Limited Co but was hoping whether someone with more experience could confirm my understanding of a few points, which I have listed below (apologies for it being lengthy):1. Corporation tax will be charged at 20% and not 40% - should I decide to withdraw any of the profits from the company then I will be charged 20% of that amount.2. Dividends of up to £5000 (to be up to £2000 from April 2018) can be withdrawn without having to pay any tax per Director - I am currently the only Director which based on my understanding, means that I will be able to withdraw up to £2000 per year (in 2018) of the profit without paying any tax. At a later stage there is a good chance I will make my fiance a Director as well - does this then mean that we will be able to withdraw up to £4000 per year as dividends. I wanted to clarify as it seemed strange that I could, for arguments sake, set-up 4 Directors and then withdraw up to £8000 pounds worth of dividends.3. Any investment I personally make into the Limited Co, I can draw back out of the company if it is classed as a Directors Loan. Does this mean that I can class the deposit I put towards the property as a Directors loan and then withdraw that amount tax free? I am going to be putting over 100k into the property as a deposit so wanted to know if I could class that as a loan and then withdraw the profit from the rental income tax free over the coming years to pay back the loan.4. Is it true that I will be able to keep the profit made from the rental income within the company and use that to purchase another property in the years to come without having to pay tax? My intention is to leave the property I am about to purchase in the Limited Co for the next 5 years, waiting until it gains a certain amount of equity then remortgage and and use this in combination with the profit made from the rental income to purchase another property, bearing in mind I will most likely have to put additional money towards the new property which would come from my savings.
You must become clear the following:
a) the distinction between income ( revenue ) and capital.
b) the "company" is an entity that pays its own taxes i.e. "corporation tax".
c) that you an "individual" is an entity who pays his/her own taxes i.e. "income tax".
d) there are 2 levels of tax to be paid, 1. corporation tax by the company, 2. income tax by you as an individual.
1. Corporation Tax is charged on company profits from income regardless of whether they are withdrawn from the company or not. The rate is currently 19% for 2017 ( https://www.gov.uk/government/publication...ration-tax) and set to reduce to 17% in 2020 ( https://www.gov.uk/government/publication...17-in-2020).
2. Correct, although you may have to justify each individuals reason for being a director to HMRC if asked.
3. Capital is introduced into a company via a "directors loan", and this capital can later be repaid to the director without the director as an "individual" paying income tax on it. The company however, can repay the loan by either re-mortgaging a house to release money, or by using company profits from company income, but remember as per point 1. corporation tax is due on company profits whether withdrawn from the company or not.
4. No, You can choose not to withdraw company profits from company income, however as per 1. corporation tax is due on company profits whether withdrawn from the company or not. If you choose to re-mortgage the property in 5 years, bear in mind that if or when the company sells the property that corporation tax is to be paid on the "Capital Gain" in the property ie. capital gain = price sold - ( price paid + capital expenses )
5. Note You can choose to withdraw company profits from company income, however as per 1. corporation tax is due on company profits whether withdrawn from the company or not, and also you as an "individual" will then have to pay "income tax" on the amount withdrawn if there is no directors loan.
Thank you so much for the detailed answer- very informative. It seems I was blurring the lines between income tax and corporation tax so appreciate you providing clarity.
While the Limited Co route is not as attractive as I thought, it still appears to be a better option than a standard buy to let given my circumstance.
If you withdraw money from the company by paying yourself a salary then the company does not have to pay corporation tax on the money, but you have to pay income tax (and if the amount is high enough NICs)
The company cany pay for a pension for a director and claim the corporation tax back on that (up to £40,000pa if you have not started drawing a pension)
Interesting - does that mean if one of the Directors are on a lower income (20% tax bracket), that they will be take the money out of the company as a salary and pay the 20% while no corporation tax is to be paid?
Basically yes. Salaries are treated as an expense by the company so are not counted for corporaation tax.
However if the director is receiving enough salary to pay basic rate tax (>~12k) they are well above the threshold for NICs (~8k) so both they and the company will have to pay NICs. The company get an allowance against employer NICs (~2k) which may cover that.
You must remember you are a Employee of the company you work for the best interests of the company at all time
If you give money to the Company Via a loan and the company pays you back your loan it has to pay corp tax first so to receive 10k the company needs to make 12k and pay 2k corp tax
Before you receive any dividend's the Company must pay corp tax of 20% and then give you your dividend
You can take an income of around 8k with out any NI payable
anything above this and your company will pay employee and employee NI
running a company is not for every one in the long run you will pay more tax than you would if you were investing in your own name
But it avoids S24 if you want to be a large landlord and your borrowing money
Learn Change and Adapt ?????
Yes, my intention is to own multiple properties which is partly why I would like to do it this way. At the moment that seems like wishful thinking but I am quite determined. Hopefully I have not yet missed the boat.
Thank you for your reply
The game is not as easy as it was
Sticker Lending and Regulation & Taxation make doing a deal much harder now
I am sorry to say the Gvt don't want landlords like you and me
best of luck
The above from Arran and DL is very good advice and should see you well.
I'd also like to further add regarding point 1 that you don't necessarily need to make your fiance a director. You can simply issue her with class 'B' or 'C' shares that will entitle her (or anyone else you choose) to receive dividend income from your profits (subject to 1st paying corporation tax) without have control or voting rights within the company.
Hope that helps
Thank you for that bit of advice. My preference is to by the only Director so that is useful.
I think I am going to further research this topic as there is clearly still a lot to learn.
I do appreciate all the replies.
Have to admit that this forum has been the most informative out of the few I have tried so far and it has only been my first week.