Buy-to-let tax reduction via Ltd company

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    Buy-to-let tax reduction via Ltd company

    Hi Everyone

    Please be kind as I am new to this forum.

    I am contemplating the following set up to legally minimise my tax bill from rental.

    I come up with this idea because I keep hearing about guaranteed rental income deal through Northwood.

    The amounts used are for ease of calculation.

    I am in 40% tax bracket through my full time employment. Therefore, when renting and after allowable expenses I will be liable for 40% tax on rental income from house(s).

    When having buy to let mortgage, landlord is able to offset any interest payments versus rental income. For instance, if rental income is £500 pm (£6k pa), mortgage interest is £4k pa and landlord does not have any other allowable expenses, 40% tax will have to be paid on £2k (6k-4k) which in this case will be £800.

    My solution:

    I set up a company and rent out the house to my company for £4k pa fixed rent (similar to Northwood contract). Personally, I will not make profit from the property.

    When my company rents out the house to the tenant, I will show £2k profit. The company will have to pay profit tax at 10% and further 10% when paying out dividends. Thus this solution enables 20% tax saving with minimal effort and it is scalable to bigger portfolios.

    Can anyone see flaws in this set up? Would it work?

    Please note that I am intending to seek professional advice from tax planner and lawyer when I will be doing this. I would like to hear from people who have adopted this approach or something similar or know why this would not be viable.


    Forum rules preclude me from commenting on your choice of agent.

    I wouldn't touch them.
    I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...


      I am not intending to go with any agent. I will set up my own company and do contract with myself for tax reduction purposes.


        Not sure where you get the 10% Corporation Tax rate from - it's 20% for the Small Profits Rate (under £300,000).

        And the effective dividend rate for a 40% taxpayer is 25%.


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