Credit Default Swaps - Rental income...

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    Credit Default Swaps - Rental income...

    As we know, with the new tax changes, mortgage interest cant be offset, but other expenses like insurance etc can be.
    So it got me thinking. Could i sell the risk of a tenant defaulting? Kind of like a credit default swap and offset the costs against tax?

    The way i see it working is i have a tenant who might default, i'm exposed to risk, so i purchase a CDS from my own Ltd company (which i already have as i'm a self employed IT consultant).
    The risk of a non-paying is then transferred to my Ltd company so i'm guaranteed the rental income, but i should be able to then offset the cost of the CDS against the rental profits thus reducing my tax bills.
    The company only pays 20% corp tax and i price the CDS so as to minimize rental profits.

    it sounds too simple??

    #2
    Insurance is a regulated activity, so your limited company shouldn't be allowed to sell it.
    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
      Let me give you a totally different example which might help your contemplation.

      You want to buy a washing machine for your rental property. You do not pay for the machine but instead take out a loan for £300 at an interest rate of 500%. You now want to charge the cost of the alternative agreement to your tax account. Or I could instead arrange any other form of gamble (which a credit swap is) - like a bet on the horses as payment for the machine.

      If the policy were to pay out that payment would be rent.... just as a rent insurance policy payout would be taxable rent.

      Comment


        #4
        Sounds like HMRC would see through that.
        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


          #5
          Originally posted by BikerJoe View Post
          it sounds too simple??
          Wouldn't it be simpler to just buy "Rent Guarantee Insurance".

          Comment


            #6
            why pay someone else the money??

            Comment


              #7
              jpkeates,

              CDS are not insurance products...

              Comment


                #8
                The process you're describing, selling the risk of a single tenant failing to pay rent to a business you operate isn't a CDS.
                It's insurance.
                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


                  #9
                  and thats how HMRC will see it too i guess.....

                  Back to the thinktank for more ideas of how to reduce rental profits!
                  I dont want to transfer the ownership of my properties into my Ltd company for various reasons, but it would be nice to transfer the rental income from myself to the company if i could.
                  I'm an IT guy - maybe my "rental business" needs a website and IT consultancy from my Ltd company at extortionate monthly fees....

                  Comment


                    #10
                    ...And mortgage interest still can be offset, but just limited to the 20% rate

                    Comment


                      #11
                      A landlord can't claim anything against income for their own time and labour.
                      I'm trying to think how HMRC would regard using the services of a landlord acting in a different capacity and paying them.

                      The issue has always been explained as being pointless, because if a landlord charged their business for their time and labour, it would be income and the net result makes the process redundant.
                      For every pound of allowance against income offered by the process, a pound of income would be added.

                      For a charge from personco to the landlord (for a web site say) the property business would have an allowable cost, but the corresponding income would be into a different tax entity, following a difference tax regime.

                      If the transaction was genuine (at market rate and normal for that kind if business), I'd guess that would work.
                      If it was simply to move revenue from one tax regime to a cheaper one, it would need to be google size to be safe, as HMRC have broad scope to decide what's allowed and what isn't.
                      And most of us have limited resources to argue with them
                      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


                        #12
                        Originally posted by jpkeates View Post
                        ..........
                        Quite - re above.

                        Why not just pay your taxes? I do.
                        If you feel your rental income is not sufficient due to the tax regime, then do the logical thing and charge more rent!

                        Comment


                          #13
                          I pay plenty of taxes!! but the recent announcements seem to be directly targeting people like myself (company directory, low salary, high dividends, high rental income) and even though my combined income will not increase, my tax bill will increase significantly. So its time to fight back!!

                          I already charge top prices for my properties, and i've always tried to stick to the rule that i wont increase rent prices for reliable tenants, so i only put up the price when starting a new tenancy... Id prefer to sting the Uk.Gov rather than my tenants!

                          Comment


                            #14
                            But taxes have always favoured some sectors and dis-favoured others at various points in time. At one point taxes were charged based on the number of windows in ones house. Some argue (ludicrously in my opinion) that the whole tax base should be changed to reflect assets, so that those who smoke and drink their money away will not be taxed. What happens is that people change their behaviour to reflect the regime, which is exactly what the taxmakers want.

                            In this instance they WANT you to increase rental rates, because that is what the tax does.

                            An excellent lecturer of mine once told a story of pendulums. If a pendulum is swinging in a direction you don't like, you can either hang on for dear life trying to pull it back, or you can help to swing it out as far as possible. You are trying to do the former. I favour the latter.

                            Comment


                              #15
                              So you're saying just roll over an pay more tax?? Not likely!! and certainly not the advice i would expect from the tax section of a landlord forum...

                              In nature, the animals that survive the changing environment are the ones most able/willing to adapt/evolve, not the ones who bury their heads and try to put up with it....

                              Comment

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