BTL - LTD Company Money

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  • Gordon999
    replied
    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.

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  • ash72
    replied
    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?

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  • jpkeates
    replied
    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.

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  • BTL investor
    replied
    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.

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  • doobrey
    replied
    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.

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  • VPatel2707
    started a topic BTL - LTD Company Money

    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.

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