Limited Company to buy new Buy to Let

I am buying my 3rd buy to let.
My total income will go above £50K (salary from job + rental income).

Is buying through a limited company a better option than buying in my personal name?

Are there any other option to avoid higher tax?

Hi robinspaul,

Did you find out more about this? I would be interested to know too if you are willing to share what you’ve found out.

Best wishes,

Hi, i did a lot of research into setting up a limited company and my verdict is if you need cashflow to be use other than investing in more proerties in the next few decades then I think it is not a good idea.

Maybe you can get some more income overall but all your money is pretty much stuck in your business as taking out for personal use you will end up paying income tax again which is more tax paid. you won’t be tax efficient to use your income to buy car,spend on your main home etc. So basically, you are setting up a pension fund in property that you can get income later or a pension/business that you can pass on to your nominee when you pass away.

While in personal name you can use the money at a lower amount right now and do whatever you want with it.

So what happens along the trajectory for the two is, in own name - you get income some not too much, you can do whatever you want with it whenever you want. so basically, your living standard is higher throughout the way to the end.

in limited, you get more income to use later and during this period you have more money to play in the property business and when you want to sell it all when you retire you get more so your living standard will be higher when you reach towards the end of your life.but to reach that goal you need to have sufficient amount of money and good economy and business judgement to make that happen. what i see people is that their property may worth millions but they still live their normal working life,it is simply because they perceive they will be wealthy later, but who knows ay? I am happy with a bit of extra cash to boost my living standards :stuck_out_tongue:

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I think you will find the benefit of a limited company is capital gains when sold

If you make a capital gain in the company, you may pay less capital gains tax, but the money belongs to the company and if you want the money out of the company you have to pay more tax to get it out, so what you save, you lose to some extent. Companies also don’t get the £12K CGT allowance.

And if you have them as a pension and are looking to pass them on to the next generation rather than to sell, death wipes out potential capital gains tax on a personal property (since inheritance tax (IHT) is paid on market value, the new ‘cost’ to the inheritor is the IHT value). If you own it through a company, the gain is within the company so is not wiped out - the potential plus is that the IHT value is lower since the capital gains tax that the company would have to pay reduces the value of the company holding the property.

It is not a simple answer and will depend on personal circumstances, future plans, future economics (eg how much house prices go up) and future tax changes - so what is the right answer for you now may not be the right answer if your circumstances or the tax rules change.

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How about lend the money to your company and charge interest.

Your first 1000 pounds received is tax free. At some point you can start taking back the “loan” from the company. In few years all your “personal” money is out or reinvested.

Also you can take dividend of up to 2000 pounds tax free. So in a year, take 3k out tax free. If you have loads of profit , you can take up to 7k in dividend after your intimate misled 2k and pay less than 10% dividend tax. If you were to earn the 7k from a property in your name considering you have reached the 50k threshold, you would be thrown into the higher rate tax band. Ie pay 40% off the 7k. If you have children , you would be required to pay some of the child benefits back since you now earn more than 50k.

Am not a tax adviser or accountant, be sure to seek advice but hey, this will be my strategy.

If you pay yourself interest from your limited company, you have to fill in a CT61 and pay 20% tax over to HMRC. If you don’t owe the 20% tax, you can claim it back via your tax return.

All your personal money might be out if you repay the loan, but if you then sell the property, you have to pay tax to get the proceeds out. So, if you buy a property at £100,000 and sell it at £200,000, you will pay corporation tax at 19% on the £100,000 profit (possibly to increase to 25% depending on profit levels from 2023), and then have to pay tax again (at 7.5,32.5,38.1%, depending on your marginal rate of tax - ie the rate adding it on to the top of your other income - increasing for next tax year by 1.25% across the board for the social care levy).

And dividend tax is at your highest rate, so, if you are already a 40% tax payer you will be taxed at 32.5/33.75% not 7.5/8.75% on any dividends over £2,000.

You would probably pay less tax by taking salary rather than dividends within your NI threshold.

Not saying it’s not a good idea to use a company but it’s not a straight forward decision - depends on your future plans and income. And I would definitely say you need an accountant if you are going the limited company route because there are so many extra rules.