New "Associated Companies" Rule for CT Tax Relief Rate

[mattfx]

Been doing a bit of financial planning recently and I noticed something about the new CT rates; my understanding is if you are a director with more than one business (as several of us are, having an SPV for a buy to let portfolio) and you have significant control in both businesses, then the two LTD's become associated.

When two companies become associated, the 19% rate of CT goes from 50k to 25k per company (i.e. the allowance is split between the two).

The issue here is two fold: 1) You've lost 50k of relief at the 19% rate because of the association. 2) You may make significantly more profit in one business than the other, and in fact may not even use the entire 25k of profit in a tax year; this is especially pertinent in my example of using a second LTD as a property SPV.

Can someone confirm whether I have interpreted this correctly? Or am I misunderstanding?

[jamesbrown]

You are correct. As I've said here a few times, this is going to bite quite a lot of contractors mixed up with BTL and other stuff on the side.

[Maslins]

You are correct. As I've said here a few times, this is going to bite quite a lot of contractors mixed up with BTL and other stuff on the side.

Yup. I always struggled to understand the desire to own BTLs in a Ltd Co, rather than personally. Seemed at best you were getting a tax deferral. Problem is if you did that and want to change it now, you'll have to pay stamp duty again (plus whatever admin faff involved). So I imagine most will suck up the slightly higher CT and stick with what they've got.

[mattfx]

Well, for starters you can deduct the interest charged on the mortgages as an expense, which you can't do if they're owned personally. You avoid Capital Gains Tax and lastly, you don't pay tax on your profits based on your earnings; as I understand it when the properties are owned personally the profits are taxed in line with your personal tax rate.

This change is massively irritating. Once again, small entrepreneurial types are being hammered by the idiotic lot in Downing Street.

I think this reduction in the 19% relief rate would actually make me better off overall via brolly than LTD. Crazy.

[Fred Bloggs]

Yup. I always struggled to understand the desire to own BTLs in a Ltd Co, rather than personally. Seemed at best you were getting a tax deferral. Problem is if you did that and want to change it now, you'll have to pay stamp duty again (plus whatever admin faff involved). So I imagine most will suck up the slightly higher CT and stick with what they've got.

You credit people with the ability to think more than 30 seconds ahead. I think the rule is absolutely correct and will hopefully help prevent abuse of the tax break.

[Paralytic]

Once again, small entrepreneurial types are being hammered by the idiotic lot in Downing Street.

You'll probably find that most people wouldn't regard building up a BTL portfolio as being an entrepreneur.

[jamesbrown]

Yup. I always struggled to understand the desire to own BTLs in a Ltd Co, rather than personally. Seemed at best you were getting a tax deferral. Problem is if you did that and want to change it now, you'll have to pay stamp duty again (plus whatever admin faff involved). So I imagine most will suck up the slightly higher CT and stick with what they've got.

No idea. Personally, I struggle to understand why anyone would get involved in BTL fullstop.

Another gotcha (of sorts) is that any company with a decent profit in the last year and a company year end later this year is already paying up to 25% on every additional pound of profit it makes because, while the tax increase kicked in from 1 April, the small profit rate of £50k and below applies to your company tax year as a whole, it does not start from 1 April. In other words, many folks here who have a company year end later this year are probably already suffering a marginal rate of 26.5%.