avoiding unnecessary tax on rent

CLAPTON

your ltd company can collect the rent as your agent ... as can a estate agent .. that doesn't change the benefical ownership of the property or where the tax liability for the rent lies.

if a charge was made for this service then it would be deductable against your rental income

the ltd company would have an income which would be taxable.. I don't know enough about company taxation to advise

if you transferred the ownership to the ltd company you would need the mortgage company's permission and again I don't know enough about company taxation but certainly when you came to sell you would be liable to CGT.

Although I don't want to get into the 'morality or fairness' of the system, I don't see how you are diasadvantaged against anyone else

you will pay rent on your living accommodate like anyone renting

and you will acquire a capital asset of the house as very little cost to yourself as presumably your rental income will cover your mortgage (if it doesn't then why are you doing this?)

CLAPTON

also of course maybe you won't pay any tax
without knowing the figures your costs may equal your rental income so no tax will be payable.
just think how unfair that would be

Baitmaster

Thanks for your continued help Clapton

Here is my situation:

I own one house, lets say my mortgage is £750pm, value letting out is also £750pm. Its currently worth less than I paid for it, so I dont want to sell

My girlfriend is studying 100 miles away so she cant move near me. I want to move near her, but we're not ready to live together

I can move near her, and pay £750pm rent, letting out my place at £750pm. My situation therefore becomes: I still own one house; I still have one place to live; I still pay out a total of £750pm. HOWEVER I now have a tax burden on my "income", although I don't see any of it

If I was renting, and wanted to move, I could do so without the added tax burden, so I feel like Im being punished for trying to own my own place

My way around this is that the Ltd Co receives the rent for its own, which is then used to pay for accommodation that it then "swaps" with me at no cost

I still own one house, and still have one place to live. I receive no income from the house, although maybe something to cover maintenance etc, but thats not the main purpose of this approach so Im not so fussed about that. The Ltd Co receives rental income, but pays out too as part of the "swap", so everything is offset. The Co makes no profit or loss, and hence no tax burden either way. It is simply a vehicle that handles my property transaction, allowing me to own a house, without tying me down to one location as is currently the case

This seems to me to work on paper, but I looked for reassurance and everyone seems to disagree. I would like to understand if there is a specific rule or something that says I can't do this, because I want to be closer to my other half, without paying the bloody government for the privilege!

hearts

Firstly it would save a lot of time and pointless discussion here, if you found out whether you would have a tax payment. It may well be the case when all is worked out that you would not pay any tax.

CLAPTON

No point is saying it all again so I'll move on but

reread my post above number 10 and work out the implications


but as an example lets say :

rental income 750 per month

lets say your INTEREST on your mortgage is 650 per month

so PROFIT on your rent income

is 750 rent
less interest 650
if furnished you can claim 10% wear and tear i.e. 75
less thing like gas/electicity checks other costs say 20 per month

so net profit is £ £5
tax at 20% on £5 is £1 per month

now I know you will still think you are being cheated but move on and learn about profit and loss and how to minimise tax using the system

lots of info on the web about landlords and haow to minimise profit.
so tax per month is 20% (assuming you are standard rate tax payer) i.e. £3

Fire_Fox

Baitmaster wrote: »

I own one house, lets say my mortgage is £750pm, value letting out is also £750pm. Its currently worth less than I paid for it, so I dont want to sell. My girlfriend is studying 100 miles away so she cant move near me. I want to move near her, but we're not ready to live together

Why should you get a tax break for making a lifestyle choice?

Baitmaster wrote: »

I can move near her, and pay £750pm rent, letting out my place at £750pm. My situation therefore becomes: I still own one house; I still have one place to live; I still pay out a total of £750pm. HOWEVER I now have a tax burden on my "income", although I don't see any of it

If I was renting, and wanted to move, I could do so without the added tax burden, so I feel like Im being punished for trying to own my own place

We are all taxed on income (salary) that we don't see half of as it goes straight into to our current account and straight out again for rent/ mortgage and bills.

You aren't being punished for trying to own your own place, the houses ceases to be your home the day you move out and seek tenants, and starts becoming a 'business asset'. The fact that the asset is a house and not cash in a savings account is immaterial, any income (interest) you receive is taxable.

Baitmaster wrote: »

I still own one house, and still have one place to live. I receive no income from the house, although maybe something to cover maintenance etc, but thats not the main purpose of this approach so Im not so fussed about that.

You will have income, £750 a month over and above your wages according to your figures. You then offset your allowable expenses - mortgage interest, essential repairs, visiting the property, finding new tenants - which may happen to add up to £750 a month thus you pay no tax. Or your expenses might add up to £500, in which case you pay tax on £250 income.

Ask the taxman and he will perhaps explain it better: we understand your logic but that simply isn't the way the law works.

Cardinal-Red

Baitmaster,

I can understand where you are coming from with the tax point, but I think you are best leaving the claim to tax fairness at the door - sadly it's not how HMRC operate!

Next point is this - if your Ltd company is set up to manage what is effectively your property portfolio, and it brings in your notional £750 a month; then it pays you your rent of £750 a month, then as a director you are receiving a fully taxable benefit. This is because there is simply no way you would convince an HMRC officer that your new home is related to your job in the Limited Company.

As such, you will have to file Self Assessment documents every year, and pay tax on this benefit provided by the company. And because of the way you've structured it, the deductions allowed above would not be available, so you'll have to pay your marginal income tax rate on the whole amount.

I know it's not what you wanted to hear but sadly, your tenants are paying you taxable income, and if you are keeping it all above board, then HMRC need to know about it.

getmore4less

Baitmaster wrote: »

getmore4less may have answered the question, but I don't understand the implications - are you saying that I would end up having to pay some form of tax anyway? I would appreciate if you could explain a bit more

Accomodation(well this accomodation) is not a valid business expense and you recieve a benifitial interest from it(like a company car) so is taxable.

Even if the company owned the house and let you live rent free it would be taxable(there are some exceptions).

Start from the other angle you are renting a place is there any way you could get this rent offset against any taxable income, if people could there would be no point in buying and we would all be doing it.

Basicaly the only tax concesion for the roof over your head is CGT.

By renting out our place you are also going to be subject to a potential CGT liability later.

One option you could look at is just get your friend in as a lodger(look up rent a room) and keep the place as your primary residense.