Starting a company to rent out my property? How?

wywywywy

Hi all,

A bit of background info first. I own a property that I used to live in until recently. The property is not on a mortgage any more as it is fully paid, and we have now moved to another property, so the original property is now vacant. I would like to rent it out rather than selling it, as the current rental market in the area is pretty good but not the selling prices.

But I don't want to rent it out "as myself", I would like to start a company, transfer the property to the company, and then rent it out, for two reasons -
1. I would like to add another property to the portfolio in the same area, probably next year
2. I am a higher tax payer so a big part of the rental income, if under my name, wouldn't go to me

But, I have no idea how! I am totally clueless... especially with regards to the sequence of things. What do I need to do after registering a company name? At what point do I get a business bank account? When should I get an accountant involve, and how, and what for? And how do I transfer the property from my name to the company's? Etc etc...

I do not wish to take a wage from the company. All the rental income will stay in the company's account and hopefully help fund the next property purchase.

Has anyone done anything similar? Any help appreciated!

Many thanks.

Seanymph

I can only pass along the professional advice that was given to me when I looked at this last year;

retain ownership of the property yourself - you can then raise a personal buy to let on it and use that money to fund your second property. Banks are leery of lending to companies, and happier lending to people - and it's lower interest, and less complicated for tax purposes.

Set up the company as a property management company. The company then rents it out for you - charges whatever you want as a management fee - and can make the interest payments direct.

You can run enough through the company not to pay tax - mobile phone, homeline, travel etc.......... therefore making those things tax free for you as they are legitimate expenses.

Obviously we went into more detail - but that was the gist.

wywywywy

Nice idea. Haven't thought of that!
Could you please tell me where I can go to get professional advice? Accountant????
Thanks.

taxsaver

There really is little benefit in putting it through a company. A company which is not a 'trading company' but purely a property investment one has a more adverse tax position as well.

Reading between the lines of your original post I think that you are married and perhaps your wife does not work or is a basic rate tax payer; that being the case, there is nothing to stop most or all of the rental income being attributed to her rather than to you.

RabbitMad

Why!

At present the property when sold will attract no or little CGT as 40,000 of any future gain attracts lettings relief as it was once your main home, plus you only pay CGT on the percentage of the total gain whilst it was let

On top of that if you have a mortgage on another property you can "withdraw capital from the business" by claiming that the mortage on your main home is actually a business loan.

An examples (with numbers easy for the maths not for realism)

You've lived in house A for 7 years
Its worth 200K and there is no mortgage
you buy house B for £500K and have a 400K mortgage against it @ 5% p.a interest

Annual Rent on A= £10,000
Offsetable Mortgae interest on A = £150K*0.5% = 7.5K
So tax only paid on 2.5K before other costs such as insurance, letting fees etc.

If 3 years later
A worth 300K - you decide to sell and total subject to CGT = 0 as you get an aditional 3 years PPR as it was once your main home

If 4 Year later
A worth 550K - you decide to sell and total subject to CGT = 50K (1/11) as you get an aditional 3 years PPR as it was once your main home but you also get relief on the first 40K so only 10K subject to CGT and you get a £10K allowance annually so no CGT to pay

Transfer it to a company and not only do you have Stamp duty, solicitors fees, runnning the company costs, Corporation tax at 20%, extra tax on dividens paid to you as a higher rate tax payer, the company will also have have to pay capital gains tax on any gain.

BitterAndTwisted

Consult a tax-accountant. They will be able to advise you on whether it would be more tax-efficient to run the rental through a company or not. They will be able to buy a limited company "off the shelf", register it with Companies House and the tax-authorities on your behalf.

wywywywy

Hi. It is because the property A is only worth £70k, so no stamp duty and even after a few years there is still little chance of CGT. And the current mortgage of the new home is a joint mortgage. So my thought was it would be better to put property A into a company - am I wrong?

wywywywy

BitterAndTwisted wrote: »

Consult a tax-accountant. They will be able to advise you on whether it would be more tax-efficient to run the rental through a company or not. They will be able to buy a limited company "off the shelf", register it with Companies House and the tax-authorities on your behalf.

So that means I need to talk to an accountant, BEFORE I register a company and get a business bank account, right?

Does it make a difference which or what kind of accountant I contact, or do I just find the nearest one? And would there be any fee to do that?

Thanks.

wywywywy

taxsaver wrote: »

There really is little benefit in putting it through a company. A company which is not a 'trading company' but purely a property investment one has a more adverse tax position as well.

Reading between the lines of your original post I think that you are married and perhaps your wife does not work or is a basic rate tax payer; that being the case, there is nothing to stop most or all of the rental income being attributed to her rather than to you.

That is spot on. We are getting married and she is a basic tax rate payer. But if the property is under my name, would it not be a problem with rental income going to her? Or do I need to transfer the property to her name?

BitterAndTwisted

Most accountants offer a free half-hour consultation, so they should be able to make an educated guess as to what their fee-structure will be for looking after your affairs once you've briefed them.

Yes, see an accountant before you acquire a company or open up a business bank account.

I suggest you consider talking to on accountant at an organisation like Tax-Assist Accountants, which is a franchise specialising in the tax-affairs of the self-employed, partnersips and small-to-medium sized limited companies. I used to work for one who did exactly that. They can acquire a limited company on your behalf and it's all quite straightforward and not particularly expensive but a lot depends on the standard of your own record-keeping and how much work you're expecting them to do on your behalf, like liaising with and reporting to HMRC etcetera

antrobus

RabbitMad wrote: »

Why!

At present the property when sold will attract no or little CGT as 40,000 of any future gain attracts lettings relief as it was once your main home, plus you only pay CGT on the percentage of the total gain whilst it was let

On top of that if you have a mortgage on another property you can "withdraw capital from the business" by claiming that the mortage on your main home is actually a business loan.

An examples (with numbers easy for the maths not for realism)

You've lived in house A for 7 years
Its worth 200K and there is no mortgage
you buy house B for £500K and have a 400K mortgage against it @ 5% p.a interest

Annual Rent on A= £10,000
Offsetable Mortgae interest on A = £150K*0.5% = 7.5K
So tax only paid on 2.5K before other costs such as insurance, letting fees etc.

If 3 years later
A worth 300K - you decide to sell and total subject to CGT = 0 as you get an aditional 3 years PPR as it was once your main home

If 4 Year later
A worth 550K - you decide to sell and total subject to CGT = 50K (1/11) as you get an aditional 3 years PPR as it was once your main home but you also get relief on the first 40K so only 10K subject to CGT and you get a £10K allowance annually so no CGT to pay

Transfer it to a company and not only do you have Stamp duty, solicitors fees, runnning the company costs, Corporation tax at 20%, extra tax on dividens paid to you as a higher rate tax payer, the company will also have have to pay capital gains tax on any gain.

I'm sorry I don't understand this;

*You've lived in house A for 7 years
*Its worth 200K and there is no mortgage
*Annual Rent on A= £10,000

Then the "Offsetable Mortgage interest on A" will be nil, as there is no mortgage on A.

You can't go around "claiming that the mortage on your main home is actually a business loan" unless the mortage on your main home is actually a business loan. To do so would count as tax evasion, if not plain and simple fraud, and could potentially have extremely unpleasant consequences for the OP if they actually did so.