Buying property through company profits and paying no tax

hutch2828

I am a sole trader at the moment and not a limited company but from this April tax year I will be making a limited company. I will be earning about 80k this year after very modest expenses. I am not VAT registered, no need to as I stop working when I earn close to £85k. I dont need this money for personal use. Can I buy a property using my £80k and not pay any tax? Maybe I'll have to pay corporation tax before buying? Can I keep on doing this each year and not take any money out and grow a portfolio? I don't need the income as my wife also earns and this is enough for us.

Thanks for any help

Jeremy535897

I assume your question is "after I set up my limited company, can the company buy an investment property and not pay any tax"? Are you talking about residential property?

The company will pay corporation tax on the profits from your efforts and buying a property will not affect this. You personally will not pay any additional tax as the property belongs to the company (unless you use it or benefit from it in some way).

If you are considering buying commercial property, the use of a small self administered pension scheme may be of benefit, as it could buy commercial property with tax deductible contributions from the company (there are detailed rules and limits).

From the description of your business, it may well be that IR35 will apply and you will still pay tax and national insurance personally.

Keep_pedalling

This property is not to replace your home that you just sold is it?

hutch2828

Hello, thank you for the comments.

Yes, I will be setting up a company this April for the new tax year. The property I want to buy will be a BTL and go through the company so I don't pay any further taxes in the short term. It will be a residential property and be let out but there won't be much profit, if any at all from the rent. So some of the companies future earnings will help subsidise the mortage I guess.

It's a long term plan to build up a portfolio long term and ensure the company pays as less tax as it can, short term. Hopefully one property per year.

Does that work? I'm planning on getting financial advice. Would anyone be able to recommend anyone in this specific niche as long term, it could make a huge difference how I am set up. Thanks again.

Grumpy_chap

The company will be subject to 3% additional sdlt rate.

Keep_pedalling

If the property is going to make little to no profit then why even do this? A bad tenant who trashes the place and does not pay the rent or a long vacant period is gong to make it a loss making venture. 

hutch2828

Keep_pedalling said:

If the property is going to make little to no profit then why even do this? A bad tenant who trashes the place and does not pay the rent or a long vacant period is gong to make it a loss making venture. 

I thought it's possible to not pay any tax on dividends and instead the property will become a business expense / or an asset. So I would use the rest of the limited companies money (after paying corporation tax) to instead buy property. That property can then be an asset and grow long term 15-25 years - which is the plan. I am less worried about short term.

If I did this personally then I would have to pay much more tax, NI etc and then each deposit would be less.

hutch2828

Grumpy_chap said:

The company will be subject to 3% additional sdlt rate.

I forgot about this. The mortgage will also be at a higher rate. But still, I am thinking about the tax saving and leveraging that.

Jeremy535897

The advantage of the company is that it will pay corporation tax on its profits rather than you paying higher rates of tax. The company cannot deduct the cost of the property from its profits in calculating its corporation tax, just like an individual cannot deduct the cost of a property from their income.

Your original post indicated that the company would have profits available of about £85,000 a year, so there should be a reasonable amount of equity in the property it buys. Why will there be little or no net rental income?

As I said earlier, you need to check whether transferring this business to a limited company does not fall foul of IR35.

hutch2828

Jeremy535897 said:

The advantage of the company is that it will pay corporation tax on its profits rather than you paying higher rates of tax. The company cannot deduct the cost of the property from its profits in calculating its corporation tax, just like an individual cannot deduct the cost of a property from their income.

Your original post indicated that the company would have profits available of about £85,000 a year, so there should be a reasonable amount of equity in the property it buys. Why will there be little or no net rental income?

As I said earlier, you need to check whether transferring this business to a limited company does not fall foul of IR35.

Thanks for the replies.

I don't think IR35 is an issue. I work for many different clients each month. I do plastering and my clients pay for materials etc. I use my car and all my jobs are local and private customers. I don't usually work for the same client again for many years, if ever. So all my clients are usually newly gaines each year.

I understand about having to pay corporation tax but want to avoid paying the divident tax and use that saving to buy a BTL.

If I am putting 15% down, the rent will just about cover the mortgage payments and so I don't plan on making any profit on the rent. I will probably end up putting money into the property to cover the mortgage outgoings. The idea really is to go for capital growth on the property, while at the same time, the mortgage is getting paid off.

Does this work and is this kind of set up a good idea?

hutch2828

Just to clarify, 15% down (80K) on a 500K property.