BUY-TO-LET and the TAXMAN !!!

mountain-man

I am looking to jump inot the buy-to-let market (with say 4 small properties) with a view to sitting on them until they are worth a bit more and sell for profit.

HOWEVER - I do not understand either the tax implications of this (i.e CGT / taper relief etc) that my wife and I could incur.

I am a 40% tax payer.She is a 22% tax payer.

I also had the idea of setting up a company to buy the properties - and rent them out so I could offset some tax liability (e.g. buy a company car / home office etc.) - but again do not know the CGT liabilities of this.

If companies do not get CGT allowances (??) - can I buy properties and rent them to a company I set up which in turn rents them out to tenants - so being able to offset expenses against normal tax but still qualifying for CGT allowance ????????

Does anyone know.....????

Ian_W

Hi mountain-man,
To answer your question, "Not me!!"
But you might find that posting on the Cutting Tax board might get you some more savvy answers. Quite a few accountants and other tax knowledgeable folks post there.

Cook_County

I don't believe in SHOUTING!

Aside from that somewhat annoying habit, the plan you have seems plain weird.

1. You spend money creating a company.
2. The company buys UK residential properties.
3. The company sits on them for a few years and they grow.
4. The company sells them and the company pays tax.
5. The company then has a heap of cash so it distributes it to you as a dividend or salary or you sell the shares in the company to someone else or you wind the company up and distribute the cash.
6. You pay a load more tax on the distribution so effectively pay tax twice whereas had the properties been in your name all along there would only have been one lot of tax bills

I also don't see why losses made by the running costs of the company would offset your other income. Running costs for the properties including travel and anything else wholly and exclusively related to the rental would be deductible if they were in your own name in any case...

sarahlouise210

my goodness your brain is working overtime !!! It seems that there are 2 issues ...
1.. you want to buy 4 properties to rent (lucky you!)
2...you want a company car and expenses for home as office..

A less complicated way round this could be .. you buy the properties and rent out in the normal way - CGT limits apply when you sell
your wife becomes a self employed agent - checking on the properties..rent collection etc. She can them claim for the company car to travel to the properties and home as office for the admin work
?????? ?????;)

mountain-man

Sorry - you have misunderstood.....

My wife and I buy the properties in our names - then rent them to a company (we set up) for a nominal rent - just enough to cover the btl mortgages.

The compnay then rents them on to tenants for a profit.

The company profits have expenses deducted against them before they are taxed - which if managed correctly balance so nil tax.

When the properties are sold - they still belong to me and my wife - so we can still claim the CGT allowance......

Or am I talking bo**ocks.....???

sarahlouise210

I did understand what you meant - just dont see the point.
The properties will still belong to you anyway ... you will have the annual exemption for capital gains
Why are you so against just renting out the properties as your own ?
You can claim your mortgage costs..heaps of expenses..perhaps you have thought of a problem I have not!

BobProperty

mountain-man wrote:

Sorry - you have misunderstood.....

My wife and I buy the properties in our names - then rent them to a company (we set up) for a nominal rent - just enough to cover the btl mortgages.

The compnay then rents them on to tenants for a profit.

The company profits have expenses deducted against them before they are taxed - which if managed correctly balance so nil tax.

When the properties are sold - they still belong to me and my wife - so we can still claim the CGT allowance......

Or am I talking bo**ocks.....???

Ignoring the timescale for "sitting on them until they are worth a bit more"...
You are probably better off holding the properties personally. The taper relief is larger the longer you hold them, and you both have personal exemptions to use when you sell them. The only reason to use a company is to have the company trading as the letting agent, taking a cut of the rent. Rental income is investment income for tax purposes not earned income. There are lots of technical differences not least that you can't offset one against the other. The tax forum will hopefully put you right on all these sorts of questions.

mountain-man

sarahlouise210 wrote:

I did understand what you meant - just dont see the point.
The properties will still belong to you anyway ... you will have the annual exemption for capital gains
Why are you so against just renting out the properties as your own ?
You can claim your mortgage costs..heaps of expenses..perhaps you have thought of a problem I have not!

Sorry - that response was to the previous reply !!

In response to your replies - I know what you mean - I supppose my perception was that you can offset many more expenses when operating a company rather than personally - without losing the personal CGT allowances.

As a company - can you not run company cars / rent office space etc which is all tax deductable whereas personally you can claim much less.

I really don't know the answers to this one !

devils_advocate

mountain-man wrote:

My wife and I buy the properties in our names - then rent them to a company (we set up) for a nominal rent - just enough to cover the btl mortgages.

The compnay then rents them on to tenants for a profit.

There's no sense in trying to work out how to do it theoretically if your business plan doesn''t stack up. Have you worked out any figures yet, as to what the mortgage will cost and what rent you'll receive?

BobProperty

mountain-man wrote:

Sorry - that response was to the previous reply !!

In response to your replies - I know what you mean - I supppose my perception was that you can offset many more expenses when operating a company rather than personally - without losing the personal CGT allowances.

As a company - can you not run company cars / rent office space etc which is all tax deductable whereas personally you can claim much less.

I really don't know the answers to this one !

Definitely getting into the tax expert area. In my mind you have to offset the costs of the company against the benefits. You may get away with more expenses running a lettings company than just claiming back your own directly incurred expenses but you have to be seen as trading which will cost money. If the whole idea is to create a company to claim lots of expenses through but it only deals with your houses then I think it will be borderline worthwhile. But if the tax man thinks you are taking the mick with the expenses he may be entitled to call the set up a sham and come after you for the tax (at 40%).