Property Developing. Limited Company or Not?

substance1987

I just bought a wreck of a place a few months ago taking hold of the keys on Friday. Had been looking for a few months and believe I've secured a bit of a bargain. The plan is to fix it up and move it on ASAP and to clear a reasonable profit for my efforts.

My question is this...Would it be in my interests to do this as a Limited Company? I already one my own "primary dwelling house" and another flat which I rent out. I figure that by setting up as a limited company I will be able to reduce my tax liability on the profit by claiming back all expenses relevant to the refit on the property. My logic is that this will work out costing me less than the capital gains tax I would incurr by selling the property for 35K more than I paid for it. Does this make sense?

Also, on a related topic...With the flat which i currently let out, what figure will I be taxed on when I complete my annual return? Will it be the gross rental figure received or will I be able to get relief on the mortgage payments I have made? The rental income is £450 per month but the mortgage is actually £447 (interest only).

Thanks.

SquatNow

Are you a builder of some sort?

passion8

dolce_vita wrote: »

Wow.

You must be really rich owning all those properties.

And yet you can't afford a f*cking accountant?

"There's no such thing as a stupid question, and even if you disagree courtesy helps." - `© Martin Lewis

What is it with this particular section of the forum that appears to encourage such bad manners? :rolleyes:

Doozergirl

You get tax relief on your expenditure. If you have renovated the property then you don't pay tax against the cost of renovating anyway. Whether you become a limited company, depends on a lot of things. Your anticipated profit is probably most significant. If this is once, then you may simply be liable for CGT but if you're doing it over again then you have to pay income tax.

There is expenditure involved with getting it set up etc. you have to get involved with paying PAYE, even on the contractors that you call in. You pay yourself the minimum salary, tax free and you can draw a certain amount in dividends tax free, but the company still needs to pay tax on the profits! The company also owns everything, not you so the way the property is financed, if it isn't in cash, will be different (and probably more expensive!) It's easy to set up trade accounts and get bonafide discounts though.

You do get tax relief against the mortgage payments - if it belongs to you personally, you're making a small loss, so theoretically, it will counteract a small amount of the gain on your development if that belongs to you personally aswell. Your BTL doesn't sound feasible as a business plan

The short of it. I don't really know I inherited a limited company and I wonder myself sometimes. I'm only just starting to get past the nodding head, pretending to understand bit myself. Perhaps the question would get a better considered response than mine on the tax board.

Doozergirl

passion8 wrote: »

"There's no such thing as a stupid question, and even if you disagree courtesy helps." - `© Martin Lewis

What is it with this particular section of the forum that appears to encourage such bad manners? :rolleyes:

One can only be grateful that they stick to this board and don't spread their venom across the rest of the forum.

silvercar

passion8 wrote: »

What is it with this particular section of the forum that appears to encourage such bad manners? :rolleyes:

Just certain people. A touch of the green eyed monster judging by the posts they respond to.

Back to the question. Limited company or private individual the expenses incurred in updating the property would be an allowable expense against the profits you make on sale. If you do develop through a limited company remember to allow for the tax costs of transferring the money from the company to your pocket.

On the rental, the interest on the mortgage upto the value of the property when you first started letting it is an allowable expense against the rental income. From your figures, I guess you are making an overall loss. Include this in your return as you can carry forward the loss to save paying tax on future years profits.

passion8

Thanks Doozergirl and silvercar.

I was beginnng to think it was just me that could see a 'clique' developing. It can make for uncomfortable reading.

Doozergirl

passion8 wrote: »

I was beginnng to think it was just me that could see a 'clique' developing. It can make for uncomfortable reading.

It's more than a clique, believe me. And yes it does.

carolt

Oh come on now, Doozer - you're part of the clique, surely?

You certainly seem to be part of the 'in-crowd'? :grouphug:

Doozergirl

Not the "special" abusive one carolt. I hope not anyway.

You're settling in quite nicely here, yourself

SquatNow

Sorry I'm still wanting to know if you're a builder?