BTL property in LTD and VAT

[NowPermOutsideUK]

If you have sufficient funds in the Ltd (which it sounds like you do) and can map out the next 2 or 3 years of your working life, then it is better to MVL and 'quit' contracting for that time. This will be the best opportunity to extract funds at a beneficial tax rate. You can then very easily start a new Ltd Co for BTL purchases and loan (the now personal) funds into that company to buy investments. The new Ltd Co will then owe you that amount of funds (personal) tax free. Or you can leave the loan outstanding and charge an unsecured loan rate on it, such as 8%, so that the Ltd pays you this % on the loan as personal income each year... recurring income but bear in mind it is taxable at your marginal rate.

Read some of my older posts for more info.

I agree with this approach and in hindsight would have preferred to do that

the alternative is to keep the funds in the Ltd and buy a property (after changing sic code) but the problem with that is you still have to extract the several hundred ks of money at some point and you will have to pay the tax at a future date at dividend rates and potentially income rates

so mal allows you to pay today the lower tax and lock it in whereas the approach that I took (wrong in hindsight) was to defer that to a later day

[lecyclist]

Or you can leave the loan outstanding and charge an unsecured loan rate on it, such as 8%, so that the Ltd pays you this % on the loan as personal income each year... recurring income but bear in mind it is taxable at your marginal rate.

Read some of my older posts for more info.

This is really interesting ChimpMaster. I had a look at your older posts, and also at HMRC guidelines, but couldn't see the advantage for UK tax residents.

e.g. You personally loan £100K to your LTD CO, charge 8% interest, and get £8K x 80% as interest repayment (and assuming the company made some profit elsewhere, you save £8K x 19% in corporation tax you would otherwise have paid, since the 8K is treated as a business expense).

https://www.gov.uk/directors-loans/y...-company-money

As per the guidelines above the 8K is taxable "interest less Income Tax at the basic rate of 20%".

Under what circumstances is this more tax efficient than just paying yourself a small salary (e.g. up to £9,564 per year) from the company each year?

[ChimpMaster]

This is really interesting ChimpMaster. I had a look at your older posts, and also at HMRC guidelines, but couldn't see the advantage for UK tax residents.

e.g. You personally loan £100K to your LTD CO, charge 8% interest, and get £8K x 80% as interest repayment (and assuming the company made some profit elsewhere, you save £8K x 19% in corporation tax you would otherwise have paid, since the 8K is treated as a business expense).

https://www.gov.uk/directors-loans/y...-company-money

As per the guidelines above the 8K is taxable "interest less Income Tax at the basic rate of 20%".

Under what circumstances is this more tax efficient than just paying yourself a small salary (e.g. up to £9,564 per year) from the company each year?

So it's not really about avoiding tax for me - the tax save was at MVL, which was also a huge work/business change for me. It's about creating recurring income without eroding the cash balance or the asset base. the tax payable will be reasonable once in retirement.

I haven't done this yet but it's one of my possible planned income streams in early retirement (I say 'early' but I'm not so young any more...). So in my case I loaned £x to my new SPV and this loan remains outstanding. SPV is earning income from the property business. CT is paid as usual. The remainder accumulates over time in the company.

I could choose to take lump sums out, personal tax free, up to the directors loan amount. This is a possibility and will take 10+ years to play out before the loan is repaid - so that is one nice tax free income stream. Once the loan is fully repaid, the SPV still owns the properties outright and any further cash extraction is subject to usual income or dividend taxation, which is fine.

Alternative is to leave the loan outstanding indefinitely and charge the 8% annually, pay 20% (withheld by company) and fill out the CT61 once a year. This continues forever if I choose never to have the load repaid, so long as the company is profitable / has funds. It could be one source of recurring income in my retirement. The company will always own the assets and the loan will always be outstanding to me... or to my dependents when the time comes.

[NowPermOutsideUK]

Also remember the first 1k in interest is tax free assuming you don’t get interest anywhere else

[Paralytic]

Also remember the first 1k in interest is tax free assuming you don’t get interest anywhere else

Not if you're a higher rate tax payer (£500) or additional rate tax payer (£0)

https://www.gov.uk/apply-tax-free-interest-on-savings

Please check your facts before giving such advice.

[lecyclist]

Alternative is to leave the loan outstanding indefinitely and charge the 8% annually, pay 20% (withheld by company) and fill out the CT61 once a year. This continues forever if I choose never to have the load repaid, so long as the company is profitable / has funds. It could be one source of recurring income in my retirement. The company will always own the assets and the loan will always be outstanding to me... or to my dependents when the time comes.

Excellent advice. Thanks. The link below provides additional information on earnings related to interest payments.

https://www.gov.uk/apply-tax-free-interest-on-savings

[Fred Bloggs]

The next turn of the screw on BTL is close. By 2025 (IIRC) all BTL property will have to have a minimum energy certificate rating of C. That's going to wipe out several years of rental income for a large number of BTL properties to be compliant. Some properties are already being sold because they'll be uneconomic to comply with a C energy rating.

[Lance]

The next turn of the screw on BTL is close. By 2025 (IIRC) all BTL property will have to have a minimum energy certificate rating of C. That's going to wipe out several years of rental income for a large number of BTL properties to be compliant. Some properties are already being sold because they'll be uneconomic to comply with a C energy rating.

Will that require a heat pump at that stage or soon after? That's £10k down the tubes as well.

[eek]

Will that require a heat pump at that stage or soon after? That's £10k down the tubes as well.

And the rest - it will cost more than £10k to update the internals to make a heat pump practical.

[Fred Bloggs]

Will that require a heat pump at that stage or soon after? That's £10k down the tubes as well.

Just the tip of the ice berg. The typical BTL terrace or semi round here will need probably 3x that or more spending to have any chance of obtaining a C energy rating. The smart folks are already steadily liquidating their portfolios.