Advice for potential landlord ... please ...

milton19700

Looking for advice from existing landlords & wondering if anyone can answer / clarify a few points. Not currently acting as a landlord but potentially looking at buying property (to let it) to boost returns on savings & take advantage of what I perceive to be low property values & potential high rental yields.

Appreciate that it can be fraught with potential issues - if it was easy everyone would do it ! Right ?

So this is really to get some advice & look at the option - read the posts on the Landlord tips thread but no clear answers there.

OK with getting a business plan together & some of the risks - but my questions relate to personal tax situation (appreciate that in depth advice should be sought from adviser!) but any steer would be helpful.

So my situation :

I pay tax at the higher rate (40%), I have c. £100K available to invest & the rate on my existing property (my home) is 0.83% (Base Tracker with base plus 0.33%)

If I choose to buy a property for rental I don't want to be giving 40% of any profit to HMRC!

So options ...

Understand that for tax purposes I can offset interest costs (plus other costs incurred) against rental income but given that the aim was to utilise savings ..

Is there any merit in setting up a company (Milton Property Rental Ltd [MPR Ltd]) & buying the property via that company ? Could I then make a directors loan to that company (from my savings) to enable the purchase ? Assuming that a company will then allow me to potentially minimise personal tax - through dividends if I choose to take them but apart from Corporation Tax payable at 20% & potentially Cap Gains (with taper relief if I choose to sell later) what other taxes do I need to consider ?

Would the mortgage rate available be higher if through a company ?

The assumption in this model is that I maximise the BtoL mortgage loan - to enable offset against revenue income. But is there an option to charge the company MPR Ltd at a market interest rate but use my savings ? i.e. Directors loan at 5%

Am I overcomplicating things ? Is there any tax advantage in being a landlord through a ltd company (apart from making calculation simpler) ?

Thoughts & advice please

G_M

Afraid I can't answer your tax/holding company questions, but my immediate suggestion is to consider extending your existing mortgage.

If you have outstanding equity in your home, and your current lender will extend, that 0.83% looks like an excellent deal....

Fire_Fox

It's worth running an advance search, people ask about avoiding the 40% rate of tax by starting a company regularly including in the last week or so.
http://www.hmrc.gov.uk/manuals/pimmanual/index.htm
http://www.hmrc.gov.uk/manuals/bimmanual/index.htm
http://www.hmrc.gov.uk/incometax/index.htm

jimjames

If you are married one option is to split the ownership so that you don't own the whole property and can own it in uneven proportions.

Holding the property inside a company isn't much help for most people for various reasons.

Commercial mortgage not residential is harder to obtain
Profit in the company is liable to corp tax but you then pay income tax on it if paid out to you so could be paying double
If price rises there is no CGT allowance for company