Buying a property to let through a limited company?

longman27

My wife and I want to buy a house with some inheritance money to rent out for an income whist holding the property as an investment. It would be a cash purchase. As the property will form part of our estate, and the long term 'blue sky' plan is to pass this estate onto our two daughters, is it a good idea to set up a limited company and have them as directors so they can take over at our demise and minimise their exposure to inheritance tax? There may be an opportunity to buy a second property for the same purpose in the future.

Thanks.

TripleH

Yes, you can have them as directors. You can have anyone you want as a director (who isn't prohibited from being a director).

The issue is the shareholding of the company. Its how the shares are owned that matters.

How much money do you have to buy this property? How much money is your estate worth? (You don't need to answer or be exact) depending on the size, professional advice planning in getting things setup correctly now is worth the price to avoid finding out in the future you have made an error.

SDLT_Geek

longman27 said:

My wife and I want to buy a house with some inheritance money to rent out for an income whist holding the property as an investment. It would be a cash purchase. As the property will form part of our estate, and the long term 'blue sky' plan is to pass this estate onto our two daughters, is it a good idea to set up a limited company and have them as directors so they can take over at our demise and minimise their exposure to inheritance tax? There may be an opportunity to buy a second property for the same purpose in the future.

Thanks.

A common reason to buy through a company is to achieve better deductibility of interest against rent, but that does not apply to you.

A company pays the extra 3% stamp duty land tax even for its first property.

longman27

TripleH said:

Yes, you can have them as directors. You can have anyone you want as a director (who isn't prohibited from being a director).

The issue is the shareholding of the company. Its how the shares are owned that matters.

How much money do you have to buy this property? How much money is your estate worth? (You don't need to answer or be exact) depending on the size, professional advice planning in getting things setup correctly now is worth the price to avoid finding out in the future you have made an error.

We have £350K to buy a property leaving an estate of £800K. Re-shares, could my wife and I both hold an equal amount or would our daughters have to be shareholders as well?

Thanks.

user1977

longman27 said:

is it a good idea to set up a limited company and have them as directors so they can take over at our demise and minimise their exposure to inheritance tax? 

Inheritance tax will still be due on whatever your shareholding is worth - I'm not sure whether you think there's some cleverer tax-saving principle involved here?

theartfullodger

In the timescales you've talked about I would expect taxation to tighten up on the tax-avoidance schemes currently so active....

Your daughters may end up worse off.

Grumpy_chap

This is worth discussing with an Accountant to take into consideration what the OP wishes to do with the funds (the BTL property) while alive as regards income as well as considering IHT minimisation.  If the total estate is £800k including PPR and there is a married couple leaving their estate to their children, the estate may not be liable for IHT.  

Keep_pedalling

longman27 said:

TripleH said:

Yes, you can have them as directors. You can have anyone you want as a director (who isn't prohibited from being a director).

The issue is the shareholding of the company. Its how the shares are owned that matters.

How much money do you have to buy this property? How much money is your estate worth? (You don't need to answer or be exact) depending on the size, professional advice planning in getting things setup correctly now is worth the price to avoid finding out in the future you have made an error.

We have £350K to buy a property leaving an estate of £800K. Re-shares, could my wife and I both hold an equal amount or would our daughters have to be shareholders as well?

Thanks.

Currently your estate is well under the level IHT would be payable, taking into account you have 2 lots of NRB and residential NRB to use which allows you to to leave £1M to your children with no IHT payable.

Before you make the jump to buying a BTL, I think spending a little bit of that inheritance on professions advice from an IFA. Putting the bulk of your wealth into property may not be the best use of that inheritance.

dimbo61

How old are your daughter's ?
Do you have Junior ISA if under 18 for them in shares ? 
If over 18 what about LISA,s £4,000 each per tax year with £1,000 government bonus.
Great way to help them save for a home of there own.
Do you have premium bonds ?
Do you have a good pension each ?

longman27

Both daughters in their 20's and buying their own places with help from inheritance.

LISA looks good. My youngest has just started a pension with her new job (she pays in 11%) so perhaps she could make AVC's that we could cover?

We have experience of trusts and inheritance and they can get messy. Maybe a limited company could prove the same for our girls in years to come.

When I was younger I used to sell the Socialist Worker paper in the rain and now I'm asking about managing tax and hundreds of thousands of pounds. Funny how your life works out.