Self Assesment Tax Rate

csswiift

I am employed and pay PAYE at higher rate tax banding. I also rent a property out via a limited company and earn £14400 per year through rental income.

Is the £14400 payable at the same higher rate as my PAYE income or low rate as a separate entity?

Thanks

Savvy_Sue

I believe it's at higher rate, because that's how the tax system works. All your taxable income goes into the pot: once your legitimate claims for tax relief have been taken into account, and your personal allowance, the rest is taxed. 

Phoenix72

Depends on what you mean by 'earn' £14,400 in rental income? If the rental is via a Ltd company then what method have you used to take money out the company? Dividends, salary, other?

Why did you set up a Ltd coy for the rental?

Savvy_Sue

Savvy_Sue said:

I believe it's at higher rate, because that's how the tax system works. All your taxable income goes into the pot: once your legitimate claims for tax relief have been taken into account, and your personal allowance, the rest is taxed. 

I thought I had updated my previous answer to say that it was important to understand how the income was taken out of the Ltd Co., and Phoenix72 has started asking those questions too. 

csswiift

I own the property personally but have the limited company to hold the rental income (short term let). The income into the Ltd is roughly £45kpa.

The Ltd company then pays me £1200 per month to rent my property which I need to do a self assessment for.

my daytime job pays me a salary from my employer which I pay PAYE tax.

Does that help?

uknick

If you own the property, how does the Ltd get the rental income?  Income usually follows ownership, unless you've raised some sort of deed to assign the income to the company.  But, that does reek of a very aggressive tax avoidance scheme. 

sheramber

The Ltd company then pays me £1200 per month to rent my property which I need to do a self assessment for.

That reads that the LTd company rents the property from you.

csswiift

sheramber said:

The Ltd company then pays me £1200 per month to rent my property which I need to do a self assessment for.

That reads that the LTd company rents the property from you.

sheramber said:

The Ltd company then pays me £1200 per month to rent my property which I need to do a self assessment for.

That reads that the LTd company rents the property from you.

Yes that’s correct. The Ltd rents the property off me.

Savvy_Sue

This may be a time when getting some 'proper' advice from an accountant about how your Ltd Co gets the money out of the company and into your pocket would be well worth paying for. Did you get such advice before you set the company up, and were the various options of how the money got from the company to you properly explained? 

uknick

As you are connected to the Ltd (I assume you're the sole director) and still own the property, this appears to be a very aggressive tax avoidance scheme, which could be bordering on evasion; your company gets £45k of rental income but you only get £14,400 to declare on your tax return.  You should be paying at least 40% income tax on the rental profit, whereas your company is only paying about 19%.

This sort of scheme cropped up a few years ago and most accountants shot it down as it was considered unlawful and wouldn't stand inspection by HMRC.