Fair Rents (Scotland) Bill or Artificial state manipulation of free market rent?10:34 AM, 6th November 2020
About 4 weeks ago 36
I’m looking for insight from fellow landlords, especially any that have already gone down a sole trader/limited co. route and if they would change anything with the benefit of hindsight.
We have full time day jobs and also have several properties in mine and my business partners personal names. We are now embarking on a development (new build apartments) that will significantly increase our rental income and we are thinking whether this development should continue with the rest of our portfolio in our personal names or sit in a newly set up limited company.
We plan to hold all our properties long term for income and only sell if the need arises. I have a meeting with my mortgage advisor so the impact of raising finance through a limited company is not included this in the discussion for now.
I know Mark Alexander does not use a limited company but having analysed the option I am leaning towards it.
Here is my thinking;
Positives For Ltd Company ownership
1. We can register for VAT and reclaim all VAT that would be charged for professional fees on the development (estimate to be at least £20k+) and then de-register for VAT once build has been completed.
2. Since the income would push both of us in to the 40% income tax bracket we could retain profits in the company (at 20% CT) rather than pay out and either reinvest or pay out over time.
3. We have family members (a wife and father) who are not working both could be added as shareholders to company so allowing double the amount of income/dividends to be paid until higher rate of tax threshold reached. They would contribute to the running of the apartments in terms of admin and maintenance.
4. As I am already at the 40% income tax threshold I would have the option of waiving my dividend (as long as sufficient distributable reserves to pay the dividends if there had been no waivers) or by reallocation of shares in suitable proportions.
5. Indexation allowance could possibly be better than CGT allowance as expecting to hold property for long period of time.
6. Shares in company could be sold to children in future at stamp duty of only 0.5%.
Negatives for Ltd Company ownership
1. No 10% wear & tear allowance
2. Higher accountancy costs
3. No CGT allowance (possibly offset by indexation allowance)
4. Extracting income from company negates the low corporation tax benefit
5. If need to extract profits from the sale of a property it would be difficult – but currently plan is to hold long term
From the above it looks like if holding the property long term for income it seems the Ltd Company is the best route.
Any feedback would be much appriciated.
Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.
Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agentsLearn More