BTL individually owned, let through a LTD Company?

Couldn’t Andrew use his ltd company for his time doing maintenance, admin, his wife’s admin work, at a cost of say £15k a year, then use that as an allowance from his business end of year tax? As he is really self employed for his property business surely that ltd company’s payment is claimable as well? ie, Landlords spend untold hours in their rental business, so can Andrew claim “his and his wife’s time” by using the ltd company?

Any thoughts folks?

This is a possibility.However be careful. I have a lettings side to my business and use it to let my own properties and those of other landlords. Previous accountant allowed our lettings business to charge our rental business in the same way we charge landlords for managed properties. New accountant says we can’t do that as we are charging ourselves for our time in managing our properties. Which is a bit daft as its okay to charge other landlords but not ourselves. But accountant did say that if lettings business was a limited company and in effect a separate entity then that would be allowed.

Reply to the comment left by “Gary Nock” at “30/03/2015 – 00:46“:

and replying to AA Property Wales – related Issues. AAPW refers to being “really self employed” for his property business. I logged on now as at 21.16 I didn’t make clear my post re Class IV NI. AAPW gives me my cue. Neither HMRC nor the Courts are consistent in the way that property income is taxed, in some areas seeking to tax as self-employment but in others as investment income. Investment income cannot have pension contributions made in respect of it and NI is not payable. NI IS payable (HMRC has a bit of a focus on this) in respect of related but distinct activities e.g. a multiple occupancy property has a bank of washing machines in the basement, a flat rate charge is levied; that is NOT letting income but is a distinct and ordinary self-employed activity/service. Which, brings in Gary’s issue of charging himself for his time on the two streams of management, his and third party. Your new accountant is spot on both counts; ” that if lettings business was a limited company and in effect a separate entity then that would be allowed”. There is no “in effect”. Legally the company has a distinct personality of its own and “management services” are not the same as, however daft it might look, as a lettings business. This distinction is clearly visible with VAT registered management companies. Rental of residential property is a VAT exempt supply, you can’t voluntarilly register and so you can’t claim back input VAT. A mangement company (say a big estate agency) must VAT register at threshold and can voluntariily register earlier. VAT is then levied on it’s own fee deduction as that activity is NOT an exempt supply. It can claim input VAT on the company’s own expenses e.g occupancy costs but can’t in respect of property related costs e.g. maintainance (exceptions apply but that’s too off thread).
Getting back to the original poster. I see no inherent problem and several advantages with the personal/company split (I have done that for the last ten years before coming into property) from an HMRC perspective but ensure that the company conducts and discharges it’s legal obligations to your tenants.

It sounds perfectly fine to me, though IANAA.

In fact the setup you have has been suggested to me by my accountant as exactly the right way to avoid tax.

Hold on avoid tax, isn’t that “tax avoidance”?!? Yes that’s right, which is perfectly legal and ethical.

NOT to be confused with “tax evasion” which is illegal, unethical, and will land you in jail.

Remember anyone with an ISA, or NS&I savings bonds, a pension, or even doing salary sacrifice for childcare vouchers, are actively involved in a tax avoidance scheme. Which is simply a scheme where by you put your money and somehow pay less tax as a result.

I believe (check this with a professional) that once you become a higher rate tax payer from your direct portfolio income as a self employed person, it’s more tax efficient to do as you’re doing (though a “peppercorn rent” might be an issue, I’m not too sure about that point) and funnel the excess income into the company, reducing your income to basic taxpayer levels.

Again, there is nothing immoral here and don’t pay any heed to people telling you otherwise. But don’t take my word for it, this is what the very senior Lord Clyde (Lord Justice General and Lord President of the Court of Session) had to say on the matter whilst trying an Inland Revenue case:

> “No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue”

From: http://en.wikipedia.org/wiki/James_Avon_Clyde,_Lord_Clyde

wow, thanks for all the info. It just shows how many different things you can learn and how much knowledge is out there. To answer a couple of points…we do take the lower level salaries from the business that give us our NI credit without contributions. We also put all expenses such as office, phone, mileage, maintenance, insurances etc through business. It is a genuine ‘all rents as income and all proper costs as outgoings’ leaving a profit within business. We will pay corp tax at 20% at the end of this year on the profits and decide if to take dividends or retain profits for investment. The one point that is unclear is our ‘peppercorn rent’, we think as we have no mortgage and we as individuals wrote to the company directors (us) requesting that the company lease, manage and report on these properties that we are doing it correctly, clearly I need to review this. Again thanks for all the input

Hi Everyone.

I understand this topic is 3 years old but I’ve just come across it as I’m in the exact same position as Andrew, the OP, where property is owned outright in my and my wife’s name but we are setting up a limited company to lease to (full repair and insure) and then the ltd co is to manage and rent out to the tenants.

Does any know of where I can get hold of a template lease for this purpose or would I need to employ a solicitor?

Also Andrew, I’m assuming there was a lease for each property? and did they each need to be registered with the Lad Registry?

Thanks in advance for any replies
Steve

Reply to the comment left by steve120 at 21/03/2018 – 13:30
Hi Steve

I’m sorry to be the bearer of bad news but if you intention is to transfer the income stream alone you “scheme” will not save you any tax whatsoever and you could find yourself in hot water with HMRC in the event of an investigation.

The Finance Act 2009 schedule 25 disallows exactly what you are trying to achieve. The legislation is headed transfer of income streams. See http://www.legislation.gov.uk/ukpga/2009/10/schedule/25

To summarise the legislation, unless you are transfer both the income stream and at least the beneficial ownership of the property you will still be taxed as if nothing had ever changed.

Please book a Tax Consultation via our main Tax page – see https://www.property118.com/tax/

Reply to the comment left by steve120 at 21/03/2018 – 13:30
Steve,
We have now been through a full HMRC tax investigation! Be careful what you put online lol. We had to restructure what we were doing as the HMRC inspectors did not agree about the pepercorn rent. To cut a very long 12 month story short we complied fully with HMRC, received no fines, and basically had made an error when setting up. We still own all our property in our own name, we still rent them through our limited company to our tenants, our limited company works as the agent and charges appropriate and approved fees, the difference between the rental income and expenditure is then returned to us as owners. We pay corp tax through the ltd company and income tax on rents received as owners. We are members of the NLA and all our documentation such as AST s are used from there site, we also use there tenant check system. In plain simple terms you cannot lease your own property to your Ltd Company and then the company rent them out as the transaction is not deemed to be at arms length. Hope it helps.

Reply to the comment left by andrew sheppard at 21/03/2018 – 15:58
Have you registered your partnership as a mixed and made the company a corporate partner? If not, I can assure you there are very good reasons for doing so, especially if you ever plan to transfer your ‘whole business’ into a company and roll your capital gains into shares exchanged for your equity using incorporation relief under TCGA92/S162

Reply to the comment left by Mark Alexander at 21/03/2018 – 16:38
Hi Mark, no we have not done anything other than running our limited company, renting our houses and living! However we do intend to look at our future planning and stuff for kids inheritance etc. Life is complicated and gets in the way!