LTD Company Rental

Alan2020

Hi Everyone,
Just thinking of this idea;
1. Borrow extra £200k from our home via remortgaging 
2. set up a LTD company 
3. Lend the company £200k as a loan from the directors.
4. Buy a BTL property within the company and pay all costs via company.
5. Repay the loan with interests back to directors.
6. Tax not paid on loan by company and directors 
7. Tax paid by directors on interest received.

is this approach the most tax efficient method?
all views appreciated. Thank you All

El_Torro

Why not just have the Limited Company get a mortgage on the BTL? The mortgage on the BTL can be used to reduce the Limited Company's profit. Less profit means less tax to pay on that profit. This is not the case on a residential mortgage.

Are you a landlord already? If not why do you think it's a good idea to get into the BTL business? Not that I'm saying it's definitely a bad idea but it's definitely not the get rich scheme it was a couple of decades ago. It also comes with plenty of risk. 

Alan2020

El_Torro said:

Why not just have the Limited Company get a mortgage on the BTL? The mortgage on the BTL can be used to reduce the Limited Company's profit. Less profit means less tax to pay on that profit. This is not the case on a residential mortgage.

Are you a landlord already? If not why do you think it's a good idea to get into the BTL business? Not that I'm saying it's definitely a bad idea but it's definitely not the get rich scheme it was a couple of decades ago. It also comes with plenty of risk. 

Thank you for the reply 
BTL mortgage for LTD companies has high interest rates and will need 20% deposit at a minimum.
Isn’t paying off the loan a way of keeping profits to zero? Would the interest payments not be the same as paying off at BTL mortgage? Unless I am thinking incorrectly?

the idea of a BTL is to provide us with income as we get older and we are hoping in 20 years to own it outright. Essentially couple of £100k or thereabouts flats or houses.

Sorry forgot to add, I am not a landlord. I think it might be harder with the regulations etc but short of ideas of what else could be viable for my skill set

El_Torro

Pensions and Stocks & Shares ISAs are arguably a lot less work than a BTL portfolio, more profitable and tax efficient too. Sure, investing in the stock market isn't risk free, but if you do it correctly (investing in the stock market isn't particularly difficult these days, though there are various things you do need to know) it should serve you a lot better than BTL. 

Yes, paying off a loan from the Ltd Company to yourself is tax free, though remember you are still paying your residential mortgage repayments. Worth running the numbers to see which is better. Might even be worth getting an accountant to look at it, though they're not going to do it for free. It might even be worth doing a combination of BTL mortgage and residential mortgage to release funds for the BTL deposit. 

brown_crow

Borrowing against your home and on-lending to a new company isn’t automatically the magic tax hack it can sound like. You get no tax relief on the mortgage interest personally, yet the interest the company pays you is taxable income (and the company must withhold 20 % basic-rate tax). The company can deduct that interest, but rental profits above it still face corporation tax, and you’ll pay dividend or salary tax to take cash out. Add the 3 % SDLT surcharge on the purchase and a possible double hit on any future capital gain (company CT then your dividend tax) and the overall bill often beats a personal BTL or a properly capitalised company. The structure can make sense if you’re a higher-rate taxpayer and plan to leave profits in the company for the long term. 

Alan2020

El_Torro said:

Pensions and Stocks & Shares ISAs are arguably a lot less work than a BTL portfolio, more profitable and tax efficient too. Sure, investing in the stock market isn't risk free, but if you do it correctly (investing in the stock market isn't particularly difficult these days, though there are various things you do need to know) it should serve you a lot better than BTL. 

Yes, paying off a loan from the Ltd Company to yourself is tax free, though remember you are still paying your residential mortgage repayments. Worth running the numbers to see which is better. Might even be worth getting an accountant to look at it, though they're not going to do it for free. It might even be worth doing a combination of BTL mortgage and residential mortgage to release funds for the BTL deposit. 

Thank you so much for all the excellent advice and points. Will run the numbers and see.

Alan2020

brown_crow said:

Borrowing against your home and on-lending to a new company isn’t automatically the magic tax hack it can sound like. You get no tax relief on the mortgage interest personally, yet the interest the company pays you is taxable income (and the company must withhold 20 % basic-rate tax). The company can deduct that interest, but rental profits above it still face corporation tax, and you’ll pay dividend or salary tax to take cash out. Add the 3 % SDLT surcharge on the purchase and a possible double hit on any future capital gain (company CT then your dividend tax) and the overall bill often beats a personal BTL or a properly capitalised company. The structure can make sense if you’re a higher-rate taxpayer and plan to leave profits in the company for the long term. 

Thank you so much. I am a high rate tax payer so this was one of the reasons I thought might be best to go Ltd company wise. Will check everything you mentioned. Thank you so much.