Investment property - do I start up a company???

steve-o_3

Hi guys,

just struggling to find some advice on this.

Basically, I am going through the process of buying my first investment property. Its a cash buy on a repossession, so I have about 2 weeks to complete the deal. The initial process has been started with myself and my wife buying the property jointly. We are both high rate tax payers in full time employment.

I have just spoke to a friend of mine last night who has a few investment properties and they suggested that me and the wife create a partnership business and then purchase the house under that business. Then, all rent and expenses can be transacted neatly under the business account.

The pro's of this being its easier to be tax efficient with the maintenance costs, repairs, management fees, legal expenses etc which can be offset against the profits from rent. Then, if there are still significant profits after you have offset the tax, you would only need pay 21% corporation tax (as opposed to the high rate tax we would have to pay if we declared this as additional income).

Just wanted to hear peoples thoughts on this. Obviously I have a very short amount of time to setup a business if that is indeed the best way to purchase this property.

Appreciate your input.

Thanks.
Steve.

DannyboyMidlands

Seems like a massive faff to me for just one house.

Your company would pay corporation tax on the profits but it would be taxed again as income when you draw it.

martinsurrey

Corporation tax @ 21% leaves 79%

Dividend income taxed at 25% of POST tax company income (effective rate) leaves 59.25% left to play with.

As opposed to paying 40% income tax leaving 60% to play with

Take into account the cost of filing accounts and tax returns for a company and it doesn’t make sense unless its part of a wider tax strategy.

Richard_Webster

A partnership is a partnership not a company. They are different.

If a company owns the house there could be some tax advnatages, but try getting an oridnary BTL mortgage for a company - not so easy!

steve-o_3

Ok, so do you have to pay 21% corparation tax AND 25% income tax when you empty the account?

If so, thats definitely not worth doing.

I'm not too bothered about being able to get a mortgage as this is a cash buy, however may consider mortgaging it in future to release money for more investments.

Thanks again.
Steve.

Suarez

You could retain the profit in the company and use it to purchase another property at at a later date or draw it out when/if you retire/take less hours in work/wait for tax thresholds to increase(could be waiting a few years)

david29dpo

What makes you think its an investment?

steve-o_3

david29dpo wrote: »

What makes you think its an investment?

I thought that would be self explanitory? Do you think buying a second house "isn't" an investment? Please elaborate.

Thanks.

david29dpo

If you need to ask you are in the wrong business.

grifferz

steve-o wrote: »

Ok, so do you have to pay 21% corparation tax AND 25% income tax when you empty the account?

For those operating limited companies, the company would normally pay 21% corporation tax on the profit, and then when they pay themselves via dividend they would have to treat that as income and pay income tax on it, minus the corp tax already paid.

Higher rate tax payer minus the 21% corp tax makes for effective tax of 25% on that dividend.

A partnership is not the same.

steve-o_3

david29dpo wrote: »

If you need to ask you are in the wrong business.

I need to ask because your statements are so vague I have no idea what you are inferring to!

Are you saying buying an investment property is not an investment? Are you saying setting up a business is not a wise investment? Are you saying paying cash is not the right investment? Are you saying paying for the house via mortgage is not the right investment?

I've done my sums on the cash purchase of this property v's the expected rental yield and expected overheads, less the tax etc and this poses to be a better investment than anything else I can currently put my money into. I'm aware of the pitfalls and demands as a landlord, so yes, some substance around what you are trying to say is needed as currently I don't know what subject you are aiming at?

As for the business side of things, I will look further into this when I understand more about tax requirements for partnerships and keep it as a private let for now.

Thanks for those who have contributed positively.

Steve.