Limited Company Formation

Jontina_Landlord

Hello All.


I have two buy to let properties. Tax is of course due on the profit from rental.


Could I set up a Ltd company to manage the properties whislt retaing the ownership of the properties in my name?


The company would do what I do now. ie collect the rents, deal with maintenance issues, pay all bills arising from the properties., etc.


I would receive no income as a director but pay a dividend from the profits taking advantage of the Chancellor's new £5,000 tax free dividend rules due for 2016-17.


Advice please?

lovinituk

What income would the company pay your dividends from? The income from the rent would still be your personal income if you keep the houses in your name.

Jontina_Landlord

The idea would be to pay the rents direct to the new management company that would have its own bank account. So the rent would never come to me.

AdrianC

And you don't think HMRC would see straight through such a transparent attempt to defraud them?

Miss_Samantha

Hi Fontina,

Rent is deemed received by you when your tenants pay it to your agent (the management company). Rent has nothing to do with your agent in the setup your propose.

Likewise, bills may not be the company's liability.

You also need to consider that if the company pays you dividends it will probably be liable for corporation tax. If it pays you a salary it may be adjusted to avoid all corporation tax.
So you need to consider the overall tax burden (yours plus the company's) and try to minimise that.

I think you need to understand accounting and tax principles better, and seek advice from an accountant before doing anything.

Jontina_Landlord

Yes, I think they would be upset if it's illegal, which I suppose is my question.


As dividends, the income would still be taxable, but I'd use another relief to mitigate that liability.


I would never do anything against the law.

marksoton

Stop being cheap and pay an accountant to advise.

Mallotum_X

The houses would need to be owned by the limited company. You can't transfer the income and keep the ownership elsewhere.

Transferring them will trigger a stamp duty charge, will trigger capital gains and if you have a mortgage will mean you need to refinance

It's extremely unlikely that you will end up better off.

kinger101

Mallotum_X wrote: »

The houses would need to be owned by the limited company. You can't transfer the income and keep the ownership elsewhere.

Transferring them will trigger a stamp duty charge, will trigger capital gains and if you have a mortgage will mean you need to refinance

It's extremely unlikely that you will end up better off.

Technically, just the beneficial ownership (right to receive rent) could be transferred, but it would still trigger SDLT and CGT.

anselld

You could set up a Limited Co as you suggest for the management aspects. However you could only transfer a fair proportion of the rental income to cover this aspect, e.g. 10%. It would therefore not be cost effective to do so for two properties.

As others have stated, HMRC would see straight through any other contrived arrangement to avoid tax on the main rental income.