Is it possible to avoid the 40% tax on rental profits?

by Readers Question

10:50 AM, 9th June 2015
About 3 years ago

Is it possible to avoid the 40% tax on rental profits?

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Is it possible to avoid the 40% tax on rental profits?

I am nearing completion on my first BTL. I am in the 40% tax band and therefore I will have to pay 40% tax on my rental income.

The property is solely in my name but is it possible for the rent to be paid to my wife as she gets taxed at 20%. I’m guessing this isn’t possible or everyone would be doing it but wanted to pose the question. Is it possible for me to avoid higher rate tax on rental payments

The other option I’m looking at is forming a company so I only have to pay corporation tax saving me around 20%. Again, is this possible as the mortgage is in my name and under the leasehold agreement I’m not allowed to sub-let?

Any advice or other ideas so I’m not ‘losing’40% of my rental profit would be appreciated.

Thanks,

Mark Harwood



Comments

Mark Alexander

10:57 AM, 9th June 2015
About 3 years ago

Blog explaining how I have structured my own tax affairs, any why >>> http://www.property118.com/landlord-tax/
.

Mark Harwood

11:19 AM, 9th June 2015
About 3 years ago

Reply to the comment left by "Mark Alexander" at "09/06/2015 - 10:55":

Hi Mark

That's excellent, just the sort of thing I was hoping may exist without me having to change the mortgage and / or legal title.

This is by far the best online property forum I have found to date.

Thanks again

Mark

Yvette Newbury

12:21 PM, 9th June 2015
About 3 years ago

I think you have a more pressing problem which is you are not allowed to let out your property according to the terms of your lease!

Mark Harwood

12:28 PM, 9th June 2015
About 3 years ago

Reply to the comment left by "Y L Newbury " at "09/06/2015 - 12:21":

I am allowed to let it out, just not sub-let it!

Shakeel Ahmad

14:11 PM, 9th June 2015
About 3 years ago

While, to set up a company is fine. You need to keep in mind that you will lose the benefit CGT annual allowance, PPR in case you wish to live there at some stage. There will be the legal requirement of Accounts & Audit, annual return and expose your personal balance sheet to the world.

You can reduce your income tax liability by paying your wife & asking her to managing the property for you.

Shakeel Ahmad

15:03 PM, 9th June 2015
About 3 years ago

HI Mark,
Agree with your posting. High gearing comes with lower cash flow issues. I guess a different topic on its own.

At some stage one needs to liquidate depending on age, health, family set up etc.

So the question in the meantime when should the equity be used for further borrowing ? and what will be the benefit of releasing £ x equity today than £x+ equity say a year later ???? What will be the utility of this liquidity. Keeping in mind that the assets would have been liquidated to move out of the kind of investment,

Mark Alexander

15:29 PM, 9th June 2015
About 3 years ago

Reply to the comment left by "shakeel ahmad" at "09/06/2015 - 15:03":

There isn't a generic answer to this question because every persons circumstances, finances and aspirations are different.

This is one of the reasons I run a private Consultancy practice, see >>> http://www.property118.com/consultancy-mark-alexander/61522/
.

Yvette Newbury

19:35 PM, 10th June 2015
About 3 years ago

Reply to the comment left by "Mark Harwood" at "09/06/2015 - 12:28":

If you rent out a leasehold property you are sub-letting it. This is because as a leaseholder you are basically a long term tenant. If your lease states you cannot sub-let then you will not be allowed to place your property for rent. Ensure your solicitor knows that you intend to let the property out to ensure he checks the appropriate clause in the lease.

Simon Lever

10:58 AM, 15th June 2015
About 3 years ago

By default HMRC will automatically split the income where a property is owned by a husband and wife on a 50/50 basis.
If you wish to change this to reflect the underlying actual income entitlement then the husband and wife have to submit a form 17 to HMRC. This is necessary even if the property is owned in unequal shares.
The form must be made jointly. If either party dissents then the 50/50 split is automatically applied.
The declaration is only valid once both parties have signed it and there is a 60 day period to submit the form to HMRC. A declaration that is submitted late will be invalid and will have no effect at all.
The declaration can be made on a property by property basis.
Before going ahead and buying the property or completing a declaration of trust take professional tax advice as to the implications of what you are planning to do.

Mark Harwood

11:50 AM, 15th June 2015
About 3 years ago

Reply to the comment left by "Y L Newbury " at "10/06/2015 - 19:35":

Thanks but my solicitor has been aware from the outset and they have confirmed in writing that I am not sub-letting the property according to the wording on the lease.

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