BTL individually owned, let through a LTD Company?

Andrew. This is interesting. Never heard of this before. But if BTLs bought in individual names outright theres not much risk there anyway. Be interesting to hear other views. Did you take legal or accountants advice before you set it up like this?

Gary, as we have property and other interests we were worried when we first started about a major disaster...lets say a tenant falls down stairs unable to work again, sue landlord etc. As the property is let through our limited company then any risk is limited to our insurance and company, nobody could come after our assets. This was the main reason for going down this route. I think others do similar but others say it is wrong. Again, this is not to do with tax or other reasons, it was totally to do with risk management in business. We took advice from accountants but not legal as it all seemed straight forward!

I'll confess I'm confused: what specifically do you think might be wrong with your setup? What prompted you to post this query?

I would take legal advice. A solicitor should be able to advise you about whether a judge would look askance at an arrangement where you are both owners of the property and sole directors of the company, which has no other purpose than leasing and renting out your own property. You appear to be seeking to avoid personal financial liability in situations where your negligent actions might, for example, cause a tenant to fall down the stairs and be crippled (your example). I'd be concerned that a judge would see through this, and say that although you may be able to avoid direct personal liability, you are also still directors of your company and are responsible for the company's actions. You may have limited liability, but you still have a considerable number of obligations as directors: see http://www.companylawclub.co.uk/topics/directors_duties.shtml. I believe the government also changed the law a few years ago to make company directors personally responsible for health and safety failings at premises operated by their companies, so you might also fall foul of that and still be liable for a claim on your personal assets by an injured tenant.

I assume you take out two sets of insurance per house, one for you personally as owners for general buildings insurance, and one for the company to cover accident liability for tenants and third parties like tradespeople).

Myself, all of this sounds unnecessarily complicated and questionable. If you are so concerned about risk protection, why not just take out a premium-quality personal BTL insurance policy, so you are covered for £10 million or more of accident claims, which should be enough long before the claimant gets anywhere near making a claim on your houses?

Or better still, get the Fire Service and your local Environmental Health people to inspect the property and certificate its safety. And get those bannisters fixed!

sounds similar to a special purpose vehicle to me.

Reply to the comment left by "andrew sheppard" at "25/03/2015 - 19:58":

As far as I know, there is no reason why you could not lease a property you own, to a Ltd company of which you are a Director, so there is nothing wrong with that set up. The only questionable bit I suppose is that you are doing this at a peppercorn rent rather than at a commercial rent.

As far as I know, there is nothing wrong with your Ltd company then letting those properties to tenants, at whatever rent they can get.

All the taxes are paid by the company, and you pay whatever tax is due on your personal incomes derived from the company (salary and dividends etc), so all the tax is being paid, and of course when you eventually sell your properties you will pay capital gains tax on them so again HMRC is not being deprived of anything.

What part of the arrangement do you believe is "wrong", and why exactly do you think this?

Our concern was raised on a couple of fiorums where people questioned the validity of the way we traded. These are comments : Peppercorn not a reasonable commercial basis. HMRC general avoidance might come in to play.In my experience, which granted is on a much more material magnitude, your agreement with your Ltd is not fit for purpose for UK Tax Legislation. Hearing why it is suitable would be useful as I may be missing something.

The limited company is run correctly and all corporation tax due paid etc, all other tax due through self assessment is paid.

I do not wish to leave myself open to question want to make sure we operate legally. If we continue to grow the business as intended we will become higher rate tax payers and the company will then be more tax efficient for us.

I still can see very little problem myself and would like to know if others operate in a similar way.

Reply to the comment left by "andrew sheppard" at "26/03/2015 - 12:41":

Hi Andrew

I have a Ltd company and I lease properties from landlords and then sub-let those properties. For example, I may pay £300 - £400 pcm for a 3 bed house in Sheffield on a 5 year lease agreement, so the landlord gets a continuous fixed monthly rental income from my company throughout the lease period. This reduces his risks and his costs (as well as time and hassle), so he is happy with that arrangement, even though I advise him that he may get £500 - £550 pcm is he lets direct to tenants. With this arrangement my company makes the difference between the rent paid to the owner, and the rents received from the tenants, BUT takes the risks, e.g. unpaid rent, void periods, tenant damage, Housing Benefit clawback, legal costs for evictions, etc, etc. Thus, although perhaps only paying a low rent, it is still a commercial rent considering the risks taken on. If in the unlikely event I then sublet the property at say £2500 pcm, it would still be a valid commercial agreement with the owner because what the company sub-lets it at is not part of the agreement with the owner.

This is what is often called a "rent to rent" scheme. Some councils and housing associations also do this, only they call them "private sector leasing schemes".

My Ltd company also leases properties I personally own, but as with leasing from other owner landlords, these leases are on commercial terms, and offer the same advantages and disadvantages, i.e. lower personal income in exchange for the Ltd company taking on most of the risks.

Robert and Andrew this is interesting stuff....it has set the old grey matter working overtime. I may be back later to pick your brains on this.

To make it acceptable to HMRC the rent you are charging the LTD company should cover the mortgage you are paying - that makes it a commercial arrangement.

You are doing it to protect yourselves but it can be used to help with tax. As an individual you may pay tax at 40% but if you are renting out your property for just over the cost of the mortgage you will be breaking even.

The rent from the third party earnt by the Ltd Co should be greater than the rent the Ltd Co is paying you and this profit will be taxed in the Co at 20% (not 40% as on the individual).

These back to back leases are perfectly legal if set up properly and a very useful way of moving profit from the individual into a company - not for everyone but very useful for some.

Jon, thanks. We do not have any mortgages and thus we feel we can 'lease' our properties to the Ltd company for a nominal sum. We have taken the view of 5 accountants on this and some think it could be deemed tax avoidance and some think all is fine! At this stage we are not avoiding any tax as we are in lower bracket and with all the allowable tax deductions against income we would still be so if we traded as sole traders in our own names. All of our income and expenses are in the ltd co and all is traceable, i am minded that we are all ok. Appreciate your input.