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Legitimate Ways to Get Round Higher Rate Tax Renting Out Property

We are considering renting out our house for a year or so but im already in the higher tax band and my partner is a not far under. So if we rented now, we would lose 40% of it in tax per month.

I have heard about starting a company and renting through that to pay the lower tax on it but I believe you need to 'sell' the house to the company and pay relevant stamp duty, fees etc like a normal sale?

Are there are any other options available?
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Comments

  • You will get a 20% tax credit for mortgage interest, so only losing 20% on that. 
  • anselld
    anselld Posts: 8,243
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    The usual 40% avoidance measures still work - pensions, charity donations or VCT/EIS investments if you are feeling adventurous.
    LTD is not the big saving you might think by the time you have paid Corp Tax and then extracted the income via salary or dividend (and paid tax again).
  • Zerforax
    Zerforax Posts: 339
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    I think there is a surcharge 3% stamp duty on top of the normal rate if buying with a company (and its 15% if the property is worth over 500k) so that might stop the company route from being attractive..
  • caprikid1
    caprikid1 Posts: 2,113
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    "We are considering renting out our house for a year or so but im already in the higher tax band and my partner is a not far under. So if we rented now, we would lose 40% of it in tax per month."

    The way successive governments have failed abysmally on housing policy you may be better selling or leaving it empty for the that short period.

    As has been stated previously you will get hammered for tax and may struggle to get back in it when you want it.

    Accept that government policy/ the legal system is actively discouraging letting and leave it empty.

  • saajan_12
    saajan_12 Posts: 3,572
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    adzy77 said:
    I have heard about starting a company and renting through that to pay the lower tax on it but I believe you need to 'sell' the house to the company and pay relevant stamp duty, fees etc like a normal sale?
    Not just that 
    -If the property is mortgaged, then the company needs to be able to apply for a mortgage too - which may be more expensive. However the interest payments can be deducted as costs. 
    -If the property is not mortgaged, then the company needs the funds to buy it from you anyway.
    -The company would pay stamp duty at the additional rate (incl the extra 3%, even for the first property it owns)
    -For ongoing rental income, the company pays corporation tax (20%) but then the money is in the company.. you still have to get it out to spend it, either via dividend / salary etc, which is taxed again. 
    -Need to file company accounts annually. 

    adzy77 said:

    Are there are any other options available?
    Could invest in something more tax efficient eg a fund, potentially even real estate focussed, where the returns are earned as capital gains (20% / 28% tax) not income (40% tax)
  • adzy77 said:
    We are considering renting out our house for a year or so but im already in the higher tax band and my partner is a not far under. So if we rented now, we would lose 40% of it in tax per month.

    I have heard about starting a company and renting through that to pay the lower tax on it but I believe you need to 'sell' the house to the company and pay relevant stamp duty, fees etc like a normal sale?

    Are there are any other options available?
    Well you wouldn't be losing 40% of the rent in tax every month for starters......there are a considerably long list of allowable expenses that can be offset against revenue and that will reduce taxable income.
  • subjecttocontract
    subjecttocontract Posts: 1,754
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    edited 2 November 2023 at 8:57AM
    There may be a way if you set up an offshore company to purchase......check out Cotswold Barristers on the Property118 web site for details.
  • Yorkie1
    Yorkie1 Posts: 11,528
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    If you research the above firm mentioned, also research the criticism that has been levelled against their practices (and their rebuttals). 

    I don't know the rights and wrongs of it all, but best to be fully informed before making any decisions with regard to them.
  • daveyjp
    daveyjp Posts: 12,406
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    There may be a way if you set up an offshore company to purchase......check out Cotswold Barristers on the Property118 web site for details.
    Don't go near it.  The more you have to find ways of avoiding tax, the closer you get to evading it,
  • adzy77 said:
    We are considering renting out our house for a year or so but im already in the higher tax band and my partner is a not far under. So if we rented now, we would lose 40% of it in tax per month.

    I have heard about starting a company and renting through that to pay the lower tax on it but I believe you need to 'sell' the house to the company and pay relevant stamp duty, fees etc like a normal sale?

    Are there are any other options available?

    If you are only going to be letting your house out for a year or so that cost of transferring ownership to a company and eventually back again will outweigh any income tax savings.  All you want, since this is a short term situation, is to make sure the house at least wipes its own face in terms of costs.
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