LTD company for small time landlord or stay a sole trader?

LTD company for small time landlord or stay a sole trader?

11:26 AM, 3rd November 2016, About 8 years ago 15

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For obvious reasons most of the current S24 talk concentrates on higher bracket earners and/or highly leveraged landlords.plan A or B

I’m the typical small portfolio landlord on the edge of getting stung by S24 so I want to make sure my next few decisions are well informed. I imagine there’s many others in my position so I thought I’d address the community for some informal advice before I speak to a tax planner.

I’m a sole trader with a couple of London rental properties and a fluctuating income. My current rental numbers are:

£32,000 Gross rental Income
£9924 Mortgages+Expenses

I’m looking to buy another property so roughly an extra £18,000 in rental income and £6500 in mortgages. My personal income can range from £10,000 to £40,000 as a sole trader. I want to spend my rental income.

At this point should I – make further purchases in a LTD company? Move my sole trader work to a LTD company? One? Both? Neither?



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Neil Patterson

11:34 AM, 3rd November 2016, About 8 years ago

Hi Stephen,

A tricky one to answer straight away as your earned income outside rent varies so much, but on average it looks likely to push you into the high rate tax bracket after you add even your existing rental income.

We also don't know if you are married and can spread your income further.

Everyone's circumstances are different so you will find our Tax Planning page helpful to start with - please see >> and I would also recommend a consultation with Mark as he will have many more questions for you.

Mark Alexander - Founder of Property118

13:14 PM, 3rd November 2016, About 8 years ago

Reply to the comment left by "Alan R" at "03/11/2016 - 13:04":

This has already been debated Alan, the accountant and the solicitor quoted in that article have both said they were misquoted.

BICT is one of many strategies and certainly not one that would appear to suit Stephen.

If you have further questions about the BICT strategy please post them on the Q&A thread established for that purpose

Question Everything

15:01 PM, 3rd November 2016, About 8 years ago

Hi Stephen

I am in a similar circumstance but have more property. Going Ltd from a sole trader is a good idea anyway as you can then 'adjust' your income to counter the property tax issues. Although there is now a dividend tax after £5k of 7.5% you are still better off than being taxed on full income plus NI. I.e., you can avoid paying NI when operating through a Ltd Co. Yes you are likely to pay more for an accountant but the flexibility and further costs deductable are probably worth it.

I'd like to hear more from others about the property incorporation in your circumstances.

Stephen Jones

0:42 AM, 4th November 2016, About 8 years ago

Reply to the comment left by "Neil Patterson" at "03/11/2016 - 11:34":

Hi Neil, Stephen here. I'm not married!

Adam, - Corp+Dividend tax at 27.5% with £5000 at 20% sounds better than 29% total as a sole trader but I'm sure there will be a cutoff point somewhere where the hassle+extra accountancy fees aren't worth the saving.

Regarding incorporating to buy property - Am I right in thinking the loan from myself>ltd company is repaid after corporation tax but with no personal tax? After this we're back to extracting dividends at 27.5% total within the basic band? Seems like there's no way to win!

Stephen Jones

1:36 AM, 4th November 2016, About 8 years ago

I've just realised I forgot to factor in the £8000 income I'll need to pay myself for NIC.

Question Everything

18:27 PM, 4th November 2016, About 8 years ago

Reply to the comment left by "Stephen Jones" at "04/11/2016 - 01:36":

By the way you write above I'm not sure you realise that your wages are a deductable expense from the company?

Also, Corp tax will be 18% in 2020.

The real beauty of it is that you can adjust your wage. You can't do that with your property income. So if you earn to much in one year, just don't take a wage at all. Better than paying 40% tax no?

You may say you 'need' to take £8k for NI inclusion but what is NI to you if you have property with which to retire with? To me NI is a con and is not worth the investment. It has lost its original cause and now is just another pot from which the chancellor uses to subsidise other losses.

You can make voluntary NI payments of you really wish 🙂

Their are also more available deductions as a ltd co as self employed, health/life insurance for one.

Paul Green

20:39 PM, 5th November 2016, About 8 years ago

My question is as follows if I have a 3 month void period and collect NO RENT, but still pay the interest only mortgage of £500 PCM which is £1500 over 3 months, is this classed as income and therefore will I have to pay income tax on my mortgage payments less the 20% tax credit in 2020/2021 At my marginal rate? Even though I have not collected a penny in rent… Bizarre…

Chris H

12:56 PM, 7th November 2016, About 8 years ago

I am all but decided that i want to create a company to purchase any further properties and expect to transfer my existing sole trader properties into this company at an appropriate time. I understand to do this it is in my interests to create a partnership as soon as possible in support of this in years to come. Can anyone advise how to work out how much this would cost to transfer 1% of my current properties to another person? Also who i would need professionally to support this activity?

Finally are there any issues with creating a company today and purchasing properties in parallel to the partnership and later transferring to this same company? I am not clear if the company should be newly formed to support the transfer.


Neil Patterson

13:25 PM, 7th November 2016, About 8 years ago

Hi Chris,

If you are talking about using Declarations of Trust please see >>

You will also need a good accountant and there is a contact form at the very bottom of our tax planning page >>

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