Holding Buy-To-Let property- best method?

Hi Considering buying another buy-to-let property and wondering what the best method might be to hold it in order to (in order of importance):

1 still get the income 2 minimize CGT 3 minimize IHT 4 be eligible for mortgage 5 least hassle

Thanks in advance for any help on this

Guy

Reply to
guy--------
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"Another" no doubt means you already have one. Or several, but the way you ask suggests it's likely to be just the one. Right?

Presumably you mean whether you should own it personally or as sole shareholder in a limited company which actually owns it.

The income can be "got" either way, but you'll probably pay less tax on it through the company, as it can make £10k profit with no Corporation Tax being due. You will probably have nowhere near that much profit if there's a mortgage to pay. You can get money out of the company as dividends, which will be tax free unless you're a HRTP, but the rules might change and might slap NI on top.

There is no NI on personal income from property.

Not sure. Would depend, I think, on whether you left the company wrapper in place around the property, i.e. sold the company (in which case the CGT position would be the same as if you had bought the house in person -- in both cases the assets you held, being in one case the company shares, and in the other the house itself, would have sustained the same taxable gain), or whether you would have the company sell the house (in which case I gather the gain made by the company would simply be taxed as profit, subject to the same favourable rates of CT).

There might be a possibility of selling shares piecemeal, thus spreading the gain (and hence company profit) over several tax years to minimise CT. Could get messy.

No difference at all, I think, if ownership is to pass on death. The assets you would leave in one case would be the company, and in the other the house itself. Both would have the same value and therefore the same effect on IHT liability.

Perhaps a company-wrapped property can be gifted in dribs and drabs more easily than a personally-owned house, by giving small batches of shares each year. Each gift would involve realising a personal capital gain on the shares, but you can scale each year's gain by keeping it at or below the CGT exemption. But you'd still need to survive 7 years for any one such slice to escape IHT.

Slightly more difficult to get a mortgage loan as a company than as an individual, and probably more expensive.

Without doubt the least hassle is to forget the company idea. You already have to fill in the property pages on the tax return, this way you simply fill in bigger numbers. Two properties don't count as two property businesses. All your properties are deemed part of a single business for tax purposes.

Reply to
Ronald Raygun

I thought this one was only applicable to trading companies and not "investment" ones?

Reply to
Fred

I've noticed that to qualify for mortgages the company would need to be set up as a "Special Purpose Vehicle" for the sole purpose of investing in residential property. Is the letting income for such companies treated the same as for a "trading" company?

Also dividends- they're not "tax free" are they?

Reply to
guy--------

It may be possible to dispense with this condition if the loan is guaranteed by the director(s)/shareholder(s).

Yes, I think so. Close investment companies are not eligible for the small companies reduced rates of corporation tax (I didn't know this yesterday, but I do now), but according to

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companies which primarily invest in letting don't count as CICs unless they let to connected persons.

They are if you're not a higher rate taxpayer.

Otherwise, you pay 25% on the extent that they are above the HRT threshold, bearing in mind that they (or rather 10/9 of them) may themselves push you over that limit.

Reply to
Ronald Raygun

But what if the company is set up as having a number of shareholders, with some shares not having voting rights. The company then only needs to decide to allow voting rights on one class of shares and remove it from another. Thus control of the company is passed from one generation to the next?

I'm interested to know if this is the case, because I hold my buy to let properties in a limited company and at some point would like my two year old daughter to take over the family business, sometime when she's old enough to take an active role in running the company, and I retire.

Kind Regards, Shane Cook.

Reply to
Shane Cook

Control of the company isn't taxed, though, so passing control is not the difficult bit. What you need to do is pass beneficial interest (i.e. the value without the control) in dribs and drabs while optimising use of your annual CGT exemption, and once she's old enough to be taught the ropes and willing to pull them, then you can re-activate her control in the way you suggest.

It's not even clear you need to have two classes of share - "control" shares and "value" shares - because she couldn't use any voting shares anyway while still a minor. It only becomes an issue if you want to keep control even when she's grown up, until you're good and ready to retire.

Reply to
Ronald Raygun

You may be right for a few weeks. Then the Government By Fools will reverse their recent decision. Give it a year or two and they'll reverse it again.

Reply to
Peter Saxton

In message , snipped-for-privacy@hemscott.net writes

This is completely wrong. The mortgagors status as being a Limited Company is NOT restricted in the way you describe.

Yes.

Reply to
john boyle

In message , Ronald Raygun writes

No, they are 'tax paid'. They cant be 'tax free' cos tax has been paid.

Reply to
john boyle

They are "tax free" in the sense that there is no additional tax to pay.

That's not true. While the majority of dividend monies are indeed "tax paid", that doesn't mean they *can't* be tax free. A small company with profits below £10k pays no tax, and dividends paid from funds arising from such profits are therefore totally tax free if paid to a shareholder who has no higher rate liability.

Reply to
Ronald Raygun

A bit like getting a net pay packet after tax at 10%, 22% and 40% has been deducted then?

True.

Reply to
john boyle

Not at all. Dividends to a non-HRTP shareholder are tax free at point of delivery, because the amount of tax the company has paid on the money involved is due whether or not the after-tax money is re-invested or paid out as a dividend.

A company with £50k profit pays £9500 CT even if it keeps £9000 in the company as a re-investment and only pays £500 in divis. Are you going to think of that as a £10k dividend taxed at 95%?

If a company pays out all its after-tax profits as dividends, then its pre-tax profits would need to be more than £17272 before the amount of tax they "deduct" matches the amount deemed deducted.

Reply to
Ronald Raygun

In message , Ronald Raygun writes

NO! I am merely making the point that there is a huge difference between 'tax free' and 'no more further tax to pay'.

Reply to
john boyle

But in this case there is no difference. Just delete the words "more further". The company has made profit and paid tax on it. After that, no tax liability will arise from a decision of whether or how much of the profit to pay as dividends (so long as they go to a non HRTP).

In my book, that's tax free.

Reply to
Ronald Raygun

In message , Ronald Raygun writes

Not in the FSAs book though.

Reply to
john boyle

Wrong book.

What has the FSA got to do with Joe-the-Plumber-Ltd paying himself a dividend out of his company's meagre ill-gotten gains? Or, more to the point, Jack-the-Landlord's-Deathtrap-Flats-Ltd?

It's the IR book you want. It says there's no tax to pay.

Reply to
Ronald Raygun

In message , Ronald Raygun writes

No its not.

Thats true, but the dividend CAN NOT be described as 'tax free' Joe, Jack or whoever might earn a lot more dosh in the tax year and might then have to pay tax on the divi.

To describe the tax treatment of a dividend paid on shares in a LtdCo as being 'tax free' would be censured by the FSA. And that IS the book to look in for this one.

Reply to
john boyle

Yes it is.

Yes he might, but I've excluded that possibility by stipulating the assumption that the recipient is not a HRTP, nor would adding 10/9 of the divi to his other income make him one.

No it isn't. The context of the original query has nothing to do with anything the FSA can poke its nose into. No-one is flogging an investment vehicle. This is a private investor wondering about wrapping his BTL venture in a company. Only the IR book matters, and it says there is no tax to pay, which means they're tax free.

Reply to
Ronald Raygun

In message , Ronald Raygun writes

But at the tinme of payment of the divi, the recipient couldnt be sure of that, therefore a rider needs to be added that the divi is potentially taxable.

Yes it is.

(Oh, and for removal of doubt " HE'S BEHIND YOU!!!")

The original quote is

"

They are if you're not a higher rate taxpayer.

Otherwise, you pay 25% on the extent that they are above the HRT threshold, bearing in mind that they (or rather 10/9 of them) may themselves push you over that limit.

"

My point is that something that can be described as being 'tax free' (such as income from an ISA) is not the same as something that pays a benefit which is 'potentially taxable but might not be if your income is small enough'.

Reply to
john boyle

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