Buy to let - company set up

[nowucme]

Hi,

I have good funds left in my consultancy Ltd that I want to use to fund a buy to let or two. My preferred approach is to set up another Ltd company to purchase and let the properties through and to fund the deposits I want my consultancy Ltd to loan the property Ltd the cash required.

Passed this by my accountant who said as long as the loan terms are formalised this is acceptable.

Difficulty comes with the mortgage companies who could see this as an unaccetpable way of raising the deposits.

So, anyone got other ideas of how to use money in contracting Ltd to fund buy to lets without taking the cash out as a dividend and getting hit at 40% tax?

[TheFaQQer]

So, anyone got other ideas of how to use money in contracting Ltd to fund buy to lets without taking the cash out as a dividend and getting hit at 40% tax?

Why not do it the other way round?

Setup a new company for consultancy. Change the SIC code etc. on the current company to do the BTL work.

[Craig@Clarity]

Or another option could be to setup a property company; make the property company a shareholder of the existing contracting company and then pay dividends to the property company.

This way, there is no corporation tax consequence but the dividends paid over to the property company will remain in the that company which you can then use as a deposit.

[northernladuk]

I was under the impression it was better to pull the money out and buy it on a personal level, particularly if you are looking to make profit on the property in the long run. You will get taxed on the profit and on the extra divi to bring it out when all you are saving is CT on the deposit?

[MarillionFan]

I was under the impression it was better to pull the money out and buy it on a personal level, particularly if you are looking to make profit on the property in the long run. You will get taxed on the profit and on the extra divi to bring it out when all you are saving is CT on the deposit?

It is.

[ChimpMaster]

I was looking to do a similar transaction a couple of years ago, but it just worked out easier to do it all outside of the Consulting company.

One of the factors which swayed me away from setting up another Ltd for the BTLs was the associated companies rule. Without going into detail here, this reduces the theshold at which your Ltds start paying full corporation tax. This threshold is set at £300k / No of associated companies.

Otherwise it sounded like a good plan. My consulting Ltd would lend the BTL Ltd whatever it needed, and charge a market rate of say 5%. Assuming 100k loan, this means 5k cost to the BTL Ltd each year, which offsets against rental income.

The same 5k is a profit to the consulting Ltd, but of course chargeable to corporation tax. Still, better to pocket this in your consulting Ltd than to give it to the banks.

I may review this plan again when I stop contracting.

It is often better to hold property in your personal name, but there are times when it is beneficial to have a company. This can be when you want to control the flow of profits out of the BTLs, so as to avoid HRT, in much the same way contractors do. It's also better for builds rather than rentals.

[nowucme]

First two ideas on swopping companies round or making new one a shareholder of existing are good ideas, thanks.

The reason for not going the personal route with the purchases is that I'll have to pay 40% income tax on the whole deposit amount. This seemed to outweigh any negatives in the company route, happy to be corrected though.

Robin

[northernladuk]

First two ideas on swopping companies round or making new one a shareholder of existing are good ideas, thanks.

The reason for not going the personal route with the purchases is that I'll have to pay 40% income tax on the whole deposit amount. This seemed to outweigh any negatives in the company route, happy to be corrected though.

Robin

Any pay how much on the whole profit and then divis at the end of the term? Most definitely research this one with your accountant first.