Buy-to-let tax reduction via Ltd company

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

    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.

    Ramon

    #2
    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...

    Comment


      #3
      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.

      Comment


        #4
        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%.

        Comment

        Latest Activity

        Collapse

        • Reply to Any property tax experts you can recommend please?
          by Trevor62
          Thank-you for the link.

          Well my issue is Tax & Assets.

          Firstly, I am in the process of building a house in my side garden, when complete I will own two properties.

          Will I have to pay stamp duty for the new build?

          Because I am an old dad and my...
          19-05-2022, 19:44 PM
        • Any property tax experts you can recommend please?
          by mpppen
          Hello,
          We have a small BTL portolio of five properties. Some are in our personal names and the latter ones in a property company we set up a few years' ago when the tax rules changed.

          I'd really like to find someone who can advise us of the best way of either bringing the personal...
          03-03-2022, 20:00 PM
        • Reply to Capital Gains Tax dilemma
          by Gordon999
          You have owned the property for 38 years ( 1984 - 2022 ) and lived in the property for 22 Years ( 1984-2006 ) plus 16 years for letting..

          The total capital gain over 38 years is apportioned between "residence period" ( exempt for cgt ) and "letting period" ( liable...
          19-05-2022, 10:07 AM
        • Capital Gains Tax dilemma
          by Ollyn
          Hello

          I am considering whether to sell my house which has been let for some time and need to see how I can best deal with CGT.

          I lived in the property from 1984 until 2006.

          From 2006 it has been occupied by tenants, now vacant and being renovated.

          ...
          18-05-2022, 18:17 PM
        • Reply to Capital Gains Tax dilemma
          by ash72
          You should seek advice from an accountant, or a property tax for tailored advice to your specific circumstances, you may be entitled to some relief if the property at any time was your own principal residence.
          18-05-2022, 21:14 PM
        • Reply to Capital Gains Tax dilemma
          by theartfullodger
          You declare (online) and pay CGT within 60 days of sale. Depending on the numbers I would expect you to pay CGT. What records do you have of applicable costs, etc?

          What you pay will depend on what CGT rules when you sell - v unlikely to be better than today, possibly worse. Covid,...
          18-05-2022, 18:29 PM
        • Reply to Tax Allowance on Rental Income.
          by Gordon999
          The property allowance is a tax exemption of up to £1,000 a year for individuals with income from land or property.

          If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income.

          If your annual gross...
          18-05-2022, 16:47 PM
        • Reply to Tax Allowance on Rental Income.
          by jpkeates
          It's £1,000 each.

          Most landlords don't use this though, because it's rare for income from a rental property to be low enough to qualify,
          18-05-2022, 09:59 AM
        • Tax Allowance on Rental Income.
          by banner257
          Can anyone help please, if a rental property is owned by two people 50 50. Would each owner be allowed to claim tax relief of £1000 each, or will the allowance of £1000 be split 50 50.
          Thanks
          18-05-2022, 08:42 AM
        • Reply to Consent to Let - do we still need to pay tax
          by Madmax86
          Rent is income. All income needs to be declared, regardless of the mortgage you have
          18-05-2022, 08:50 AM
        Working...
        X