Ltd company just to make pension contributions

Zadumbreion

I'm sure this is a really stupid idea, but:

If I'm already a higher rate taxpayer, and I have an opportunity to generate additional rental income - could I set up a limited company to receive the rental income and then pay that into a pension rather than via PAYE or taking dividends? Up to an annual limit of £40K of course...

Thanks!

Jeremy535897

If you would have to transfer the property to the company, that would crystallise a liability to capital gains tax. There would also be stamp duty.

Contributions to a pension scheme would not necessarily qualify for relief against corporation tax:
https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm08344

Zadumbreion

I wouldn't be transferring any property. I would basically be lending money to someone I know who has existing rentals but can't take advantage of other opportunities because he has no spare cash.

Jeremy535897

In that case you, or rather your company, would be receiving interest income rather than rental income. If you funded a company whose sole purpose was to do this, I doubt it would be an investment company as such, and I don't think you could fund a pension scheme with it.

Zadumbreion

Jeremy535897 said:

In that case you, or rather your company, would be receiving interest income rather than rental income. If you funded a company whose sole purpose was to do this, I doubt it would be an investment company as such, and I don't think you could fund a pension scheme with it.

Could you explain why not please?

Keep_pedalling

Zadumbreion said:

I wouldn't be transferring any property. I would basically be lending money to someone I know who has existing rentals but can't take advantage of other opportunities because he has no spare cash.

If your company would be lending to an individual rather than a Ltd company then you would need to obtain a consumer credit licence to do this.

Jeremy535897

Zadumbreion said:

Jeremy535897 said:

In that case you, or rather your company, would be receiving interest income rather than rental income. If you funded a company whose sole purpose was to do this, I doubt it would be an investment company as such, and I don't think you could fund a pension scheme with it.

Could you explain why not please?

Non-trading companies have to be investment companies with an investment business to claim expenses of management (including pension scheme contributions). A company that has one loan as an investment may not pass this test. Even if it does, it is unlikely that much in the way of expenses of management will be regarded as commercial, as opposed to a disguised dividend to its shareholder. This is a technical area, and you should take proper advice before proceeding.

Grumpy_chap

Zadumbreion said:

I'm sure this is a really stupid idea, but:

If I'm already a higher rate taxpayer, and I have an opportunity to generate additional rental income - could I set up a limited company to receive the rental income and then pay that into a pension rather than via PAYE or taking dividends? Up to an annual limit of £40K of course...

Thanks!

Zadumbreion said:

I wouldn't be transferring any property. I would basically be lending money to someone I know who has existing rentals but can't take advantage of other opportunities because he has no spare cash.

However this idea would be structured (company or not), it does not sound as though you have the opportunity to generate rental income.  

It sounds like you would be lending money to someone you know, who may use the money to buy property and rent it out and may pay you some (or all) of the money back.  That type of lending should be on the awareness that you might lose the money, the friend, or both.

If you have spare funds available sufficient to buy a property and generate rental income, you may be better buy a BTL yourself (which can be in a company if appropriate).

Perhaps you can explain the idea more in case I have misunderstood.  The assessment of in or out of a company needs the idea to be clear.