personal BTL leasing to own Ltd company for managing letting

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    personal BTL leasing to own Ltd company for managing letting

    Recently I read about personal BTL properties leased to own (i.e. Director same person) LtdCo to manage lettings. Instead of the term 'lease', terms like 'license' and 'tenancy at will' were also used. There are several folks on the web forums saying they are structured this way.

    The structure is: give personal BTL at a smaller 'value' to the LtdCo. LtdCo then lets the property at a higher rent (either directly or via an agent). LtdCo retains the profit, after deductions, for future business development. It can also pay salary/ dividend to the individual if it chooses to.

    Another potential advantage is: Since any mortgage payment on the BTL property can be included in the payment from the LtdCo to the individual, the new legislation (i.e. removal of mortgage interest relief) is circumvented without selling the existing personal BTL to the LtdCo.

    Since the 'income' received personally is very small, the personal tax liability is minimised. Also, since this 'value' received is small, below SDLT threshold, SDLT is not payable.

    I can't figure out whether this is an accepted method. Hence thought of checking with the forum.

    #2
    I've heard of a number of people selling these kinds of "schemes" and charging for seminars and for putting them in place.
    I, personally, don't think they're going to work - they're an obvious tax avoidance issue, and HMRC would want that to become evasion.
    But, not many people have actually done this and there hasn't been a challenge from HMRC, so it's only a belief of mine.

    I don't follow the point about interest relief, though.
    The scheme reduces personal tax by reducing the personal income and moving the majority of the income into the company.
    The allowance on interest works the same way for the landlord, who has the mortgage burden, and the restriction on the allowance remains.
    The idea is to set the rent to the limited company at the right point to minimise the tax due.

    The difficulty for most small landlords is the traditional barrier to running their business as a limited company.
    Getting the money out, and the additional costs over time (including the cost of ending the business, which is somehow never included in the examples published).

    Currently, you have a tax free allowance for dividends of £5k, so this could be used for most people.
    The government has said that will be reduced to £2k, but haven't done it.

    Any salary you pay yourself would be taxed as income, which reduces the efficiency.

    But the real risk remains that you could do all of the work and find that HMRC still wants the income tax anyway (so you have all the setup and operating costs and pay the same tax as now).
    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).

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    • Reply to Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      Hi Andrew
      First of all I've got an initial appointment to speak to an accountant on Friday!

      Can I just check where you write ' ...at death 1/6th of the value of the whole would have been deemed to pass to you for CGT purposes as the survivors would share the whole'.

      Does...
      08-12-2021, 18:02 PM
    • Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      I appreciate 'ignorance' is no excuse, however there are some mitigating factors, i.e. due to illness etc.

      1. Previous family home rented out - terrible tenants - left owing rent, bad repairs etc. [usual story for some] subsequently property not let for 2 years for a number of reasons while...
      06-12-2021, 13:51 PM
    • Reply to Caught out by changes to Capital Gains Tax
      by jpkeates
      Even if probate wasn't mandatory, it would probably have been useful.
      08-12-2021, 13:44 PM
    • Reply to Caught out by changes to Capital Gains Tax
      by AndrewDod
      Yes this would be the case if it was jointly owned (not as tenants in common). The situation would be that at death 1/6th of the value of the whole would have been deemed to pass to you (for CGT purposes), as the survivors would share the whole.

      So for the 3 periods you would be taken...
      08-12-2021, 12:51 PM
    • Reply to Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      jpkeates
      There was no estate as such, property jointly owned - they were both retired at time of purchase living on small pensions, hence I bought with them so they could stay in the home they'd been renting from council from early 1950s to March 1982 at time of purchase. And I paid for the initial...
      08-12-2021, 10:50 AM
    • Reply to Caught out by changes to Capital Gains Tax
      by jpkeates
      I don't know the historic thresholds, but it's bizarre that there's no probate for both of your parents, their estate has to be tiny for that to be possible nowadays.
      It's probably too late for HMRC to do anything about that, but that process sets the values for CGT calculations later on, so it's...
      08-12-2021, 10:28 AM
    • Reply to Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      Morning Andrew
      Thanks for your response early this morning and clarifying I have to make three separate calculations [the split wasn't clear on the CGT calculator].
      I understand the query on the value but this is an ex council house on a council estate [I feel I have to defend it here as...
      08-12-2021, 08:45 AM
    • Reply to Caught out by changes to Capital Gains Tax
      by AndrewDod
      As gordon indicates you need to consider it in three entirely separate parts, each have their own gain and calculation --

      The part YOU owned before Death 1
      The part YOU owned between Death 1 and Death 2
      The part you owned after Death 2

      Based on the values you give...
      08-12-2021, 05:52 AM
    • Reply to Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      Thank you Gordon, didn't see your response this afternoon. I will look at this with fresh eyes tomorrow as it's late now.
      I've put some figures in my reply to a post just now but answers below to your questions.

      a] £80k Jan 2021 sale price.
      b] As property purchased before...
      08-12-2021, 00:55 AM
    • Reply to Caught out by changes to Capital Gains Tax
      by reluctantlandlord1976
      Andrew, apologies only just seen your post [was it awaiting approval did you say?] answers are:

      Purchased March 1982 as joint tenancy - so equal split of 33 1/3% each party
      Parent 2 died September 2007 - as joint tenancy I inherited their share - so at this point I own 100% of property...
      08-12-2021, 00:41 AM
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