Buy-to-let tax loophole or just tax evasion..?

silvercar

Why not just get a BTL mortgage on your current home, rent it out and use the rental income to pay the mortgage. At the same time buy your new home on a residential mortgage and live in it.

If you need money out of the business to make it work then take a director's loan or declare a dividend.

HappyHarry

BTLLL123 said:

Hi all,

I am a fairly new BTL landlord and I’m contemplating using my limited company to purchase my own (personally owned and only) home to create a BTL and simultaneously facilitate the purchase of my next home. 

Common sense would tell me that it would need to be at market value seeing as, if I were to pay over market value, I would benefit from receiving the additional cash personally without paying income tax on it. 

That said, I would have thought that I would find at least one article explaining why you can’t do that… but nothing! So I wondered if anyone knows what laws and/or tax implications would pertain to this? A breach of the Companies Act I suspect? 

And going back to reality, if anyone has any experience doing the above (at market value), I would be interested to know if there are any specific requirements to be met due to the seller and buyer being connected parties.

Thanks in advance. 

The overpayment would be counted as earnings for the director and would need to be declared.

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21660

BTLLL123

silvercar said:

Why not just get a BTL mortgage on your current home, rent it out and use the rental income to pay the mortgage. At the same time buy your new home on a residential mortgage and live in it.

If you need money out of the business to make it work then take a director's loan or declare a dividend.

The income from the property would be subject to income tax at the higher rate if owned personally, so it wouldn't even come close to paying the mortgage.

We would also then incur more SDLT as our next home would be a second home. My limited company can afford to make these investments, I personally cannot, because of all the other taxes I'm subjected to!

BTLLL123

Thank you all for your comments so far.

I knew, in reality, that this wouldn't be feasible, I just couldn't figure out exactly why it wouldn't but this has been very helpful. 

Bookworm105

you would be living in a home owned by your own company. Unless you pay it full market rent for doing so, you would be liable for a benefit in kind personal income tax charge every year for as long as you live there.

There is no loophole, it is no different to the company providing you with a company car, it's a benefit in kind.

km1500

it is perfectly feasible all you have to do is sell your house to the company for whatever you want - ten times the price if you wish 

however when you come to your tax return for the company and also your personal tax return there are various questions about have you made any other taxable gains or income, have you participated at any tax avoidant schemes etc etc to which you would have to declare what you have done - or lie