UK Landlord Forum / Life

Hi there after any experience tips or advise on my situation;

1. My wife and I are 40% tax payers and will be continuing work whilst starting in property investment
2. Based on fact that TAX is better for us setting up as a LTD company, but mortgage rates and loan rates are better on a personal basis we are looking at our options.
3. We plan to buy 1st property, 4 years later a 2nd, 3 years later a 3rd, then one every 2 years. in 20 years time we hope to have 10
4. In 20 years we stop work and start to take a salary / dividend at most efficient tax rate.
5. After 5 years of withdrawing we sell all properties and close up.

After seeing one accountant they have suggested:

By property in our personal names and mortgage in our personal names.
Set up a LTD property management company to charge the rent etc
Tenant pays rent into management company, who take a cut and pay the remainder to us, which then pays exactly the mortgage rate and no more. Tax on this is offset as interest only mortgage.
The profit builds up in the management company at corporation tax rate of 20%. We then withdraw in 20 - 25 years time as salary or dividends.

Does anyone have any better suggestions of can comment if this plan works?

Hi there...

I suppose you are still paying your taxes in a roundabout way as far as the management company is concerned. Me with my HMRC hat on would argue that the arrangement to charge a fee equal to what would otherwise be your profit is a little premeditated and has an air of being a little artificial?

As HMRC are now looking to stamp out what they believe to be artificial arrangements (mainly offshore trusts etc) and also taking a much closer look at the individuals when its now comparing Land Registry details with Self Assessment, who knows.

I suspect that failing a personal investigation looking at your affairs as a whole you would probably go under the radar of HMRC but...


No yes or no answers here I don't think, luck of the draw to a certain extent!

Thanks

Hi 83 and welcome.

What is your view on this if all the rent and the repayment of the mortgage was made by the Ltd company.

i.e. ownership and mortgage in private names, but then a 20 year lease at peppercorn rent, and an assignment of the repayment made as a "swap of asset and liability between the Shareholders and the Ltd Company"

Basically instead of the income and expense being the individuals, they would both become the Ltd companies.

Work undertaken by the shareholders and directors would be paid via PAYE.

Profits made in the Ltd Co, would be used, after tax to repay the capital on the mortgage.

The only reason for doing this way would be that the banks wont lend money to Ltd companies, but will to individuals, as now BTL mortgages seem to be based on Salary! However, building up a profit in a Limited company, is a great way of controlling an individuals asset based "pension" income.


Does that make sense?