BTL - LTD Company Money

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    BTL - LTD Company Money

    Hi There,

    Please can someone help me with a query?

    I am looking to purchase a BTL property through a LTD Company - but I am slightly confused how the money element works.

    I’ve read online that the Director can pay themselves a salary and as long as that’s below the Personal Allowance, there’s no Tax or NI to pay. Dividends can also be withdrawn at the relevant tax rate.

    I’m getting slightly confused - I was going to open a Business Bank Account and use that to receive the rental income and pay expenses. However - for example, let’s say if the boiler broke and the property needed a new one. My simplistic head is saying that I can simply purchase the boiler using the rental income accrued in the business bank account - but is that allowed? Or, will that transaction be subject to tax and NI if I am over my personal allowance?

    Also - are personal allowances treated separately from a personal and LTD company perspective? I work full time. Or, do you have two personal allowances?

    Any help would be greatly appreciated.

    Many thanks.


    #2
    Others will be able to give more detailed / authoritative advice on this. I don't operate a Ltd, personally. However :-

    1. The company would be liable to corporation tax on profit. Profit is net of expenses, so in the case of your hypothetical boiler yes that would be paid out of company revenue, before tax.

    2. Your company can pay you a salary. You have a personal allowance which applies to income from any source, so if you work full time then no your income from your company would not be tax free. It would be additional to your existing earnings and would be subject to income tax at the normal progressive rate. No you do not have two personal allowances.

    There are pros and cons to using a Ltd company structure for property investment. One of the cons is that money you pay yourself is typically taxed twice - once as company profit and then again as personal income.
    There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

    Comment


      #3
      I have never operated a Ltd Co but it is something I’ve been looking in to for a long time. Everything doobrey said seems to be correct.
      Not quite sure what you mean about the transaction being subject to tax but the cost of the boiler being replaced should be deductible from the amount of rental income that corporation tax is payable on.
      Also I’m sure you probably know this but you don’t have to take money out of the company every year, sometimes people run the property business through a Ltd Co and reinvest the profits in to more property or allow the profits to build up with a long term plan to eventually quit the day job and then use their tax free personal allowance to extract money from the company.

      Comment


        #4
        You need to look very closely at this and you probably should work through it with an accountant.

        For example:
        Property is purchased at £200,000, sold in 10 years at £300,000. Rents of £12000 per annum, costs are £2000 (no mortgage) per annum.

        Personal Basis:
        You have some income but the additional income doesn't make you a higher rate tax payer - but your personal allowance is used elsewhere.
        You have £10,000 net income per annum, pay £2000 of it in tax.
        When you sell, you have £12000 personal allowance, so pay CGT of about £21k (just under).

        You've earned (after tax) £80k in rent and have a capital gain of £79k = £159k and have paid £41k in tax.

        Company basis (same figures):
        Your company pays £1900 per month in tax (retaining £8,100 profit after tax).
        The disposal is also income (there's no cgt for a business) so you pay £19k in corporation tax and the business retains £81k).
        Over the decade, your business earns £81k in rent and £81k in the increase in the property value = £162k.

        Which is more money on the face of it, but not a lot - in my simple (and back of a fag packet) example, a whole £3k.
        It's more if you pay any higher rate income tax.

        And you've paid to incorporate the business, a decade's annual accounts and the cost of closing down the business at the end.

        If you take it out as income you'd pay normal income tax (so you probably wouldn't want to do that) - because it means two lots of tax on the same income - an effective tax rate of about 36%.

        Any money taken out in the meantime as dividends is limited to £2k per annum interest free, the rest is at 7.5% (which is an effective tax rate of about 25% overall).
        So you could take out an additional £20k of income over the decade from the company without paying more tax.

        When you sell the business at the end, you would probably have some additional capital gain, but you can probably lose that somewhere.

        You've gained £23k over a decade with the costs of running the business probably taking about a third off that.

        But if you're borrowing, things are very different, because commercial lending is normally more expensive than personal borrowing, and more typically tied to the BoE lending rate.
        Right now, that's probably a tiny difference, but it may not be over the decade.

        Where a company can benefit you big time is to take out the income as contributions to your personal pension which are tax free for you.
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          You should talk with an accountant, as it depends upon a number of questions, are you intending on buying more properties? Are you going to finance the purchase through a mortgage or from cash?

          Comment


            #6
            The Ltd company is a separate tax entity . If the company buys a property , the company pay tax on its annual rental income minus the annual expenses. These allowable expenses can include letting agent, property maintenance and mortgage loan interest. The annual rental income less allowable expenses gives the profit which is charged at 19%.

            If you buy the property in your own name, your rental profit is the annual rent minus the allowable expenses and the profit is added to your job income for calculating tax. The allowable expenses include letting agent and maintenance costs but does not include loan interest. But you do get a personal allowance of £12,500 which is tax free.

            Comment

            Latest Activity

            Collapse

            • Reply to Mortgages - Buy 2 Let v. Vacation Rentals
              by Halfbob
              Interesting, thanks for that. It would very much be a "summer season" and other School Holiday type Vacation Property, so that wouldn't be disastrous. Other than the fact that if it's available to Let for less than 210 days per year you can't claim Mortgage Interest Tax Relief. But then...
              09-08-2020, 18:53 PM
            • Mortgages - Buy 2 Let v. Vacation Rentals
              by Halfbob
              On verge of organising a Buy to Let interest only mortgage at a pretty good rate but had a last minute rethink. May now do vacation Rentals in the property we're buying as the location lends itself to that and there's the Tax Advantage of Mortgage Interest being an allowable deduction from the Taxable...
              08-08-2020, 12:21 PM
            • Anyone Buying At Present?
              by woodbine66
              Wondering if BTL investors are buying at the moment, taking into account property prices and uncertainty over Corona, jobs and the economy? Property prices still seem to be holding up near me and lots still selling. Anyone care to predict what's going to happen to prices and demand in near future....
              04-08-2020, 12:27 PM
            • Reply to Anyone Buying At Present?
              by doobrey
              Yields seem fairly horrendous. £850 pcm on a £220k property is 4.6% gross with no voids.

              Rental return is low, compliance requirements and risk are high.

              I don't see much of a case for buying unless you can do something clever or find something genuinely underpriced.
              09-08-2020, 16:05 PM
            • Reply to Mortgages - Buy 2 Let v. Vacation Rentals
              by Section20z
              Don't forget that London already restricts holiday letting to 90 days a year (without planning consent) and it is likely other areas will follow with similar restrictions.
              09-08-2020, 14:45 PM
            • Reply to Mortgages - Buy 2 Let v. Vacation Rentals
              by loanarranger
              Thanks for replying in such a professional manner.

              If the short term lender indicates limited or zero demand having paid valuation and possibly non refundable applications fees, then your broker will need to research the BtL market and source a conventional lending option.
              Please...
              09-08-2020, 12:20 PM
            • Reply to Mortgages - Buy 2 Let v. Vacation Rentals
              by Halfbob
              Absolutely no problem with that, and thank you for taking the time to reply in such detail.

              I'm comfortable with regard to the surveyor acting for any lender confirming that the property is in an area where there is a strong demand for such accommodation. If there wasn't I would, and still...
              09-08-2020, 11:31 AM
            • Reply to Advice please selling to limited company
              by flyingfreehold
              if the sign a TR1 to transfer the property into a limited company the consideration (ie value of the property) is owed to you. It would be possible to grant a mortgage over the property in your favour. There are advantages of owning property in a limited liability company especially in relation to personal...
              09-08-2020, 10:42 AM
            • Advice please selling to limited company
              by Stables
              I purchased a small fire damaged storage garage/unit (non residential) last year for £45,000, it was funded via personal savings and personal finance which my wife and I took out, so no outstanding mortgage.

              I now wish to set up my own limited company and sell the unit to it. At some time...
              07-08-2020, 11:00 AM
            • Reply to Advice please selling to limited company
              by Gordon999
              I suggest you visit 2 or 3 local shops ( for bookkeeping records and VAT returns for small local businesses ) and ask for quote for supply of "company ltd" and for preparing the annual return to Companies House and ask if the shop can do the transfer of property to company.
              09-08-2020, 09:21 AM
            Working...
            X