Iv'e built up a large amount of money in my company over the past 6 yrs, i'm also in the flat rate scheme for VAT although this will is will change next year. Some of my colleagues have BTL through their existing LTD company set up, my accountant says as i charge VAT I would also need to charge VAT on any rent, is this correct as in the same sentence he suggested setting a new company up ( for which he would charge £400 yearly to do the books ). I have no issue setting a company up but obviously do not want to incur charges when not needed, there will not be many properties to manage as I intend to buy for cash rather than all the hassle of mortgages
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Buying a property as a contractor
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Originally posted by Swampydrill View PostSome of my colleagues have BTL through their existing LTD company set up
Originally posted by Swampydrill View Postmy accountant says as i charge VAT I would also need to charge VAT on any rent
Originally posted by Swampydrill View Posthe suggested setting a new company up ( for which he would charge £400 yearly to do the books ).
How would the money transfer though? Would one company invest in the other one? I don't know how that would impact the ring fencing of the different businesses...Free advice and opinions - refunds are available if you are not 100% satisfied. -
Be aware of the "associated companies" rule if you set up a separate company. It could mean that you end up paying higher corporation tax rates on your contracting income. This was the reason I didn't buy a property through a Ltd Co.
It's a ridiculous rule, not suprising from HMRC I guess.
See:-
Associated Companies and Corporation TaxComment
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Thanks for the replies, my accountant confirmed that residential properties are exempt from VAT but as i am flat rate registered i would pay VAT on the rent, he also confirmed that the corporation tax limit is split by the 2 companies so chaurrently £150k profit allowed through each company before higher rate, i would just get inside that as it is actual profit. Is probably better to set up a different company i think rather than use savings to buy as do not want another mortgage, just paid off last one.Comment
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Rental income (from residential property) is exempt from VAT - if the company was to take on a rental property you would not charge VAT on the rents, however as exempt supplies form part of your Flat Rate turnover you would need to pay over Flate Rate VAT which would not be cost effective.
The easy way round this is to de-register from the Flat Rate Scheme (which you have said you will be doing anyway) - if you do this you will be able to reclaim VAT on the inputs relating to your consultancy work, however VAT could not be reclaimed in respect to inputs on any exempt supplies (the rental income).Comment
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Originally posted by Craig at Nixon Williams View PostRental income (from residential property) is exempt from VAT - if the company was to take on a rental property you would not charge VAT on the rents, however as exempt supplies form part of your Flat Rate turnover you would need to pay over Flate Rate VAT which would not be cost effective.Free advice and opinions - refunds are available if you are not 100% satisfied.Comment
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I just thought about something (at nearly 2am...) : you're looking to buy the BTL property for cash, so why not just take a loan from your ltd?
You would pay a market rate of interest on the loan, 4% or whatever, but that is paid back into your ltd (taxable as profit).
The advantage is that you are using money from your company and buying the BTL in your personal name. Best of both worlds.
I'm quite confident this is feasible but do get it checked out with your accountant.Comment
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Originally posted by ChimpMaster View Postwhy not just take a loan from your ltd?
See Corporation Tax implications of overdrawn directors' loan accounts.
As you point out, you have to pay interest too and this would stack up after 20 years. It cost be more than 1% too because it looks like the original poster is a higher rate tax payer.
Perhaps a MVL and capital distribution is the best way to get the money out of the company?Free advice and opinions - refunds are available if you are not 100% satisfied.Comment
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+1 on Wanderer's and Craig's input - IME, although tempting, its nearly always better in the long run to keep BTLs away from your company. Sorry.Comment
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Re.
Yes, I have a BTL through my Ltd. The rent is zero VAT rated and I was advised to deregister from Flat Rate.
There are pros and cons to buying through Ltd or Personally. I have a mix of both and the main reason I bought through Ltd was because by the time this flat came up for sale, I was already at the 40% tax rate so for the 35% deposit required, I would have incurred a £30k tax bill the following year.
So, I mitigate the Income Tax up front but get hit further down the line for CGT - if, as and when it is ever sold.
I realise this wouldn't apply to the stated example if he is a cash buyer. Otherwise I reckon it is swings and roundabouts in the tax world.Comment
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