How to protect our second home from the tax man!

LittleHaggis

Hi there,

We are two self employed small business owners. We have had one property for around 8 years which we no longer live in but do have rented out and then our own home which we have lived in for 3 years.

Our second home is mortgaged and does have around £120k equity in it. We would like to ensure that this equity is protected for our children.

As we are both self employed the implications for tax can be a little confusing and even more so for a second home. Should we be setting up a separate limited company to own the second home? What are they ways in which we can protect our investment. Our other businesses are limited if this makes a difference. I suppose also we need to be covered in case the businesses fold in anyway and the tax man comes after any assets as this would be our main one.

Thank you LH x

olias

I would think you would be better off employing a tax specialist accountant than relying on the advice of an internet forum when discussing complicated issues of tax avoidance.

Olias

catfish50

LittleHaggis wrote: »

Hi there,

We are two self employed small business owners. We have had one property for around 8 years which we no longer live in but do have rented out and then our own home which we have lived in for 3 years.

Our second home is mortgaged and does have around £120k equity in it. We would like to ensure that this equity is protected for our children.

As we are both self employed the implications for tax can be a little confusing and even more so for a second home. Should we be setting up a separate limited company to own the second home? What are they ways in which we can protect our investment. Our other businesses are limited if this makes a difference. I suppose also we need to be covered in case the businesses fold in anyway and the tax man comes after any assets as this would be our main one.

Thank you LH x

I on the other hand would rather you pay your fair share of tax, including on your second home, rather than it having to be paid by me among others.

If you think some particular aspect of tax law is hitting you unfairly, maybe you could write to your MP about it?

greenface

there are some really smug t w a t s on this forum sometimes and op isnt talking of tax avoidance they are asking for guidance and protection of assests. I only agree with "see a specialist" bit it will pay to pay to pay less. House buying selling and renting seems a reasonable place to ask . Good luck op welcome to MSE and please post again sometime.

wishes there was a button called smug

System

catfish50 wrote: »

I on the other hand would rather you pay your fair share of tax, including on your second home, rather than it having to be paid by me among others.

If you think some particular aspect of tax law is hitting you unfairly, maybe you could write to your MP about it?

What is your point? There is no such thing as 'fair share' of tax. Just because you want him to pay more than he should doesn't mean he is paying his 'fair share'.

The OP is entitled to use the most tax efficient method to manage his/her affairs.

catfish50

greenface wrote: »

there are some really smug t w a t s on this forum sometimes and op isnt talking of tax avoidance they are asking for guidance and protection of assests.

Unfortunately, the end result of people successfully "protecting their assets" is that the tax they evade ends up being paid by others. People don't like to acknowledge this basic fact, but it's true.

System

catfish50 wrote: »

Unfortunately, the end result of people successfully "protecting their assets" is that the tax they evade ends up being paid by others. People don't like to acknowledge this basic fact, but it's true.

I think you have a fundamental misunderstanding of the way tax works.

zappahey

greenface wrote: »

there are some really smug t w a t s on this forum sometimes and op isnt talking of tax avoidance they are asking for guidance and protection of assests.

Of course it is tax avoidance. And it's perfectly legal so I don't see your beef.

mlz1413

I believe from the info given that an assets in your personal names cannot be used to pay debts from either limited business if they folded - this is the whole point of being a 'limited' company.

currently the 2nd home would be taxed for capital gains when sold, this is in simple terms;
sell price (after all fees have been deducted)
less cost price (including any fees)
less any capital costs (ie extensions)

you can get reliefs for private residence of this property and private letting relief - neither of which I could advise you on, but a specialist tax accountant should be well worth an hour or two's time for advise.

00ec25

Protect the investment from what?

Inheritance Tax? See your accountant about how the children will inherit your businesses and your personal wealth. As you already run ltd companies you are aware of the admin costs of operating them, often not regarded as worthwhile for a single property rental portfolio. If you set one up to own your property renting business then, as you’d be the sole shareholders, it would form part of your estate for IHT anyway. If you want better IHT planning see a solicitor about setting up a trust.

Capital Gains Tax – you already have a liability, I assume “we” means you are legally married and are joint owners of the property. See an accountant to ask about Lettings Relief as you are currently entitled to this on top of your period of private residence relief.

Bankruptcy - assuming your business is a fully fledged Ltd company then as you know the Ltd status protects your personal assets from any debts owed by the company, (unless you have given director guarantees or secured a business loan against the property?)


ooops beaten to it by MLZ (really started writing it at 12:30, got interrupted)

olias

greenface wrote: »

there are some really smug t w a t s on this forum sometimes and op isnt talking of tax avoidance they are asking for guidance and protection of assests. I only agree with "see a specialist" bit it will pay to pay to pay less. House buying selling and renting seems a reasonable place to ask . Good luck op welcome to MSE and please post again sometime.

wishes there was a button called smug

And there are some really thick t w a t s who don't know the difference between tax avoidance and tax evasion:rotfl:

Let me explain in easy terms for the hard of thinking - The OP is talking about tax avoidance - perfectly legal and a sensible way to protect your assets, hence my suggestion to contact a specialist for advice. This is good advice when you are talking about assets in the hundreds of thousands. The OP is not talking about tax evasion (illegal) neither did I suggest they were.

So in summary, I am not smug, but you are thick.

Olias