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Previously on "Tax benefits of moving btl from personal to ltd"

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  • NowPermOutsideUK
    replied
    This also came up on Housepricecrash - Frankly insane HMRC policy and very difficult to enforce

    I know no one who pays rent after deducting basic iincome tax for HMRC - Tennants are likely to spend the money themselves on beer and cigarettes

    Leave a comment:


  • eek
    replied
    Just saw this on LinkedIn and thought it worth mentioning

    Post | Feed | LinkedIn

    Are you aware that if you are absent from the UK for 6 months or more, and rent property out here, then you are required to register for the Non-Resident Landlord Scheme (NRLS)?

    Under the NRLS the tenant (or letting agent) is required to deduct basic rate tax from from the rent before paying the landlord, and this must be accounted for to HMRC on a quarterly basis. If the tenant, or more usually the letting agent, fails to deduct the tax then HMRC will pursue them for it and not the landlord. If you can prove that the landlord has paid tax in the UK on the rental income then HMRC may settle for just interest and penalties.

    A landlord can apply to HMRC to have the rental paid gross, but remember that if HMRC agree then it is only in relation to the property that the application was made for, not all the properties the individual owns.

    There are a few pitfalls and compliance issues that need addressing when it comes to the NRLS, so if you are a tenant or letting agent that may be affected, or an overseas landlord who is within scope, then please get in contact.

    Leave a comment:


  • NowPermOutsideUK
    replied
    Just as a follow up to chimp master view that after the ltd owns the property and after 20 years when the director loan for the purchase has been repaid you end up with a property in the company and a zero balance sheet

    now chimp master has said you would sell the property rather than the shares themselves which is a valid point.

    however you then have the problem of extracting the 500k via dividends and paying dividend tax unless you move abroad where dividends are zero tax rates which is unusual

    the point I am making is moving personal to ltd for an existing higher tax payer does bring down tax from 40% to 19% but then you have to pay further to take it into your personal name.

    im still struggling to understand what the tax rate is for the ltd option given

    1) you will always be a higher tax payer because of other property owned in personal name

    2) you can easily stretch this out to 40 years being 20 years to recover the 500k director loan and a further 20 years to extract the money once it has been sold in 20 years.

    my thinking is you do save (40-21%) but then get lumped with a 30% plus higher rate dividend tax

    Leave a comment:


  • NowPermOutsideUK
    replied
    I ve not lived in them and they are all pure btl.

    Cgt is 10k a year so the tax saving is 2-4K. On a 500k property this cgt tax optimisation is not much sadly.

    Long term is income and sell them eventually indeed

    What is worth highlighting is that if they remain in personal name you pay 40%. If they are in ltd and you take this out as a salary you end up paying more because of employer ni and employee ni. I know about dividends but even that is 19% corp tax and then dividend tax on top.

    All in all a very difficult but fortunate position to be in

    Leave a comment:


  • Craig@Clarity
    replied
    Other things to consider in all of this what are your long term goals? Are you looking to sell them in future? If so, owning them personally grants you CGT Annual Exemption Allowance which you wouldn't get under a ltd. Have you lived in them before as your main residence? This is relevant for lettings relief which may be worth something to you.

    Leave a comment:


  • ChimpMaster
    replied
    You're in between a rock and a hard place, like many who built up property businesses over the years. Section 24 has completely decimated the way that property portfolios used to work and there really isn't an easy way out of this.

    BUT congratulations on being single and building up £72k in passive / rental income. Frankly that is an amazing income to have from property, what with it being your side business. Especially if it is passive. We have to work hard on HMOs to build up rental income to decent levels.

    You could look to carry out any major works on the BTLs that are needed, so as to reduce the profit.

    I think it's worth keeping any new properties you buy in a Ltd Co. Think long term, when you retire from IT or when you're married (if ever planning to). You will have more flexibility on how and when the Ltd profits are distributed.

    If you're managing the BTLs yourself, at least partly, then the property Ltd can charge a mgmt fee, say 15%, of gross rental income on your personal BTLs. This reduces the amount liable to personal tax and is one of the 'easier' ways to alleviate some of the personal tax burden.

    I should mention that your comments on CGT are not correct. Example: you loan the Property Ltd company £300k cash. The Ltd will buy the property at the market price of say £300k, from you. You pay CGT if there is any profit personally at that point. The directors loan is repaid to you over 20 years. So now the Ltd has no debt on the property - but it still paid £300k for it. So only any rise in value above £300k will count as profit and will be liable to CT when sold. You sell the property, not the shares in the company.

    Any growing business or portfolio will pay tax at some point. We have the right to minimise our tax but should also not let higher tax stop us from growing. Yes we're being screwed by s24 but that is now the lay of the land and we have to work with it until the tax law is changed again.

    As always, best to speak to a savvy accountant.

    Leave a comment:


  • northernladuk
    replied
    Do we can't help you. It's down to the number based on your current situation. We've absolutely no idea of any of that so not sure why you think we can help.

    Leave a comment:


  • NowPermOutsideUK
    replied
    For full disclosure I do have a ltd with a couple of btl in that ltd.

    This question was focused on the tax position of moving a btl to the ltd if you are already a higher rate tax payer and what tax savings or cautions to be aware of

    Leave a comment:


  • northernladuk
    replied
    Didn't one of our friendly accountants say it wasn't worth it unles you've got a couple? There was a reason why but I can't remember.

    Leave a comment:


  • NowPermOutsideUK
    replied
    Thank you chimp Master. Was definitely hoping to hear from you

    The current 50k passive income comes from BTL already owned from personal btl and they won’t move so no way to optimise that. This is a further 22k a year income which I am hit with 40% tax.

    I am aware of director loan and extraction of purchase price over a number of years. Following that strategy will mean that after 25 years the loan is repaid but the ltd owns the asset and you get lumped with a massive cgt bill on the shares you own even though the price of the house has not moved. Put differently your £100 ltd is now worth 500k!

    Another twist is if you did take out the full rental income of 22k from the ltd as a salary (and I just use it for illustrative purposes) you will pay 40% personal tax PLUS employer and employee national insurance which is even worse!

    Leave a comment:


  • ChimpMaster
    replied
    It's about striking a balance on your tax affairs. So it isn't easy for anyone to advise without knowing the details of your tax situation as well as what your future plans might be.

    Might not be worthwhile moving this one BTL into a Ltd but you could buy your next one in a Ltd.

    If you're going to mortgage it then bear in mind that lender fees + interest rates are higher in a Ltd.

    If you're loaning personal funds to the Ltd to buy the property then this is a directors loan and you can extract the same amount tax free over a number of years, after CT has been paid on profits. You can also choose to charge an unsecured loan rate on that directors loan, which counts against CT but is liable to your personal rate of income tax. Again it's about striking a balance on where the tax is paid.

    I'm assuming you don't take any pay from your contracting income either i.e. that remains in your IT company?

    So the real question is about the £50k passive income. Where is that generated from and is there any way for you to make it more tax efficient?

    Leave a comment:


  • NowPermOutsideUK
    started a topic Tax benefits of moving btl from personal to ltd

    Tax benefits of moving btl from personal to ltd

    I know many here have property as a side hustle so I was hoping to seek some advice on whether my thinking is straight

    Facts:
    Passive income of 50k so already a higher rate tax payer
    Btl already owned which being in 22k a year
    No mortgage
    No capital gains
    Single no wife

    Leave in personal name:
    I continue to pay 40% on the 22k income (I know service charge and repairs are deducted but these are tiny and sel managed)

    Move to ltd
    Pay stamp duty 15k
    Pay only 19% corp tax so save 4K a year in tax

    However the ltd route only covers getting it into the ltd wrapped. If I actually want to take out the income cash into my personal name I have to pay dividend tax or take it out as a salary and national insurance

    My question:
    Does moving the property from personal to ltd actually save any tax?! Before I thought it was obviously yes

    After running the numbers in a spreadsheet I don’t think that’s true anymore
    Last edited by NowPermOutsideUK; 17 February 2021, 21:15.

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