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.

    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%.

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