Lease my primary residence to my own LTD company

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    Lease my primary residence to my own LTD company

    Hello,

    I own a property on a typical residential mortgage and I am moving to the south. My plan is to obtain a consent to let from my mortgage provider and let the property out as a holiday let. I do not plan to buy another property at this time nor do I want to transfer this property to a LTD company as we do not have the funds available.

    I am a higher rate tax payer so for tax efficiency I am wondering whether it is possible to lease my property to a letting company (owned by myself). The rent will therefore be taxed at 20% Corporation Tax, rather than the 40% tax rate which would apply if I let the property as an individual.

    I understand that there will be limited relief on my interest cost operating in this model but the upside tax saving at 20% on the holiday let income should outweigh this cost

    Does anyone have any experience in operating this strategy?

    Many thanks,

    Soparles

    #2
    It is very unlikely that your lender will allow a consent to let for either a holiday let or letting to a company.
    So, the first hurdle may be a showstopper.

    I don't think HMRC would allow the arrangement that you are proposing.
    If you lease the property to your own limited company, you would be expected to charge your company rent (otherwise it's not a lease) and you'd be expected to charge something like a market rate (otherwise it would probably be tax evasion).

    So you would still have some income taxed at 40% and your business would have a rent cost to offset against its own income. As you point out, your personal income would have a restriction on the interest cost that could be offset against tax.

    But the secondary details are probably academic, as the mortgage change is likely to be an issue - even if the lender allows the use as a holiday let (which some might) letting to a company would be a problem (because that's a commercial lease).
    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


      #3
      Thanks for your detailed response jpkeates.

      I have already received separate advice from the lender regarding the consent to let so I am not particularly concerned with this point.

      I have done some reading and have found this link which seems to suggest that this type of arrangement can be used: https://www.directhousebuyer.co.uk/l...-tax-loophole/

      I am thinking that the arrangement would look something like this:

      Mortgage cost at £10k
      Rental income from LTD company £10k
      Disregarding expenses, I would pay 40% income tax = £4,000
      Income generated by holiday let business £50k
      Disregarding expenses, I would pay 20% Corporation Tax = £10,000

      Total Tax = £14,000

      This compares with a £20,000 tax bill which would be required should the holiday let income be added directly to my income.

      This is obviously a very high-level comparison as it disregards expenses etc which would reduce the tax bills in both scenarios.

      Are you also able to explain why letting to a company would be a problem, please?

      Thanks for all your help!



      Comment


        #4
        ( a) I agree adding holiday let income to your own income ,tax on £50K at 40% = £20K , leaving you with £30K in hand .


        (b) If you let to Ltd Company at £10K, your tax = £4000.,

        The company taxable income = £50K - £10K rent = £40K charged at 19% corporation tax = £7600.

        Company pays £10K rent plus £7600 Corporation Tax.= £32,400 remaining for payment to you as "dividend"


        (c) You receive £32,400 dividend , £2K is tax free.but £30,400 is charged at 32.5% = £9880 tax.

        Total tax bill is £4000 ( you ) + £7600 ( Company ) + £9880 ( you) = £21,480, and

        leaving you £6000 ( rent) + £20,520 ( div) = £26,520 in hand..


        Comment


          #5
          Originally posted by Soparles View Post
          I have already received separate advice from the lender regarding the consent to let so I am not particularly concerned with this point.
          ...
          Are you also able to explain why letting to a company would be a problem, please?
          If the advice from the lender didn't include a discussion about leasing the property to a company, I'd have the conversation again.
          If it did, and the lender doesn't have an issue with it, my concern is clearly academic.

          The article you linked to is clearly separating itself from the subject it's discussing, making it clear that its only discussing what is being discussed by landlords online, which makes the reference a little circular.

          And, as Gordon has highlighted, the scheme ignores the issue of how you get your money out.
          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


            #6
            Thanks guys, that’s all understood.

            The plan would be to retain all profits within the business to invest in BTL property, so no need for dividends.

            Thanks.

            Comment

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