Using a property company to rent out flat

Freefaller · 14 Mar 2016 at 09:56

Hi chaps,

I'm sorely tempted to go down the route of starting a company so that we can transfer our rental property to it.

From what I know (I haven't researched it so I may be wrong / out of date) it would be advantageous to transfer the ownership. I believe that the first £10,000 of profit a limited company makes is free of tax? Is that correct?

The rent will be around £1,200-£1,300 - we are mortgage free, but after agent fees and everything the income will still be over £10k a year so this would help minimise the tax exposure.

If we were to make a 10k profit on our rental income as a higher rate taxpayers we would have to pay £4,000, but if I understand correctly a company there is no tax liability up to 10k? Sure there will be corporation tax, but that is still less than if we took that as extra income - the extra income increases our tax liability up by more than double the corporation tax.

As we are higher rate taxpayers I believe we would pay 40% on the profits? I believe that for a ltd. the tax rates are between 0-30% so even at the higher end is still a saving.

Even with the cost of an accountant (my one charges around £500 - once a year) - I think this would be the sensible way to go.

Or am I missing something obvious in the new laws?

Appreciate feedback (constructive).

Freefaller · 14 Mar 2016 at 10:10

Thanks

I believe stamp duty does not apply to transfer to company?

A dividend income is a smaller tax liability than paying the full 40% I believe. We'd be using the money generated for maintenance, and for as and when overpay our mortgage on our main home, or use it for savings/rainy day fund.

I will be speaking to my accountant though to go through this but wanted to see what you guys thought or if any of you have done it or do it?

Freefaller · 14 Mar 2016 at 11:19

No problem. I'm going to speak to my accountant and solicitor and get an overview of what it will cost us vs what it will cost us if we do nothing and just stay as private owners.

I am happy to hear of people's experiences and thoughts too so feel free to contribute

Freefaller · 14 Mar 2016 at 11:53

Hamish said:
I'm pretty sure that it's not worthwhile to do this. HMRC is really cracking down on properties owned by companies.

Showboat - If you want to pass property onto kids without inheritance tax the best thing is to set up a Trust for them and have the properties owned by it.

Maybe but that's why I'm waiting to hear back from my accountant. It's worth looking into. Heck, if I can save over 12k in stamp duty and taking into consideration charges/taxes vs income it may be worth it to save a few k is worthwhile.

Freefaller · 14 Mar 2016 at 12:14

You're probably right which is why I'm getting advice

Eitherway it's more about long term financial gain. The stamp duty will pay for itself in just over a year.

However, if we do not do this and we miss the stamp duty hike for our family home (fingers crossed) I'm still interested in seeing if it is worthwhile using a company to rent the flat out. Just curious as to the pros and cons of doing this.