FIRE

Sarenco said:
Tax on profits generated from the rental income is 25%, rising to 40% if the profit remains in the company for more than 18 months.

And you will have to extract the profit at some stage, whereupon it will be liable to up to 52% tax on the income.
Click to expand...
The question is, what was the alternative?

If he was an employee / PAYE earner, would he have been able to buy all those properties using his after-tax income? Would he have been able to take out as many mortgages? Would he have been able to generate the same level of income as a result? Are there ways of reducing that liability by making pension contributions to his and wife wife's directors' pensions, or similar?

Better to have a smaller slice of a bigger pie...
 
It’s not necessarily better to have a smaller slice of a bigger pie.

By holding rental properties within a company, rental profits would be subject to tax at a combined rate of up to 92%.

On an after-tax basis, you would be far better off holding personally, even if the value of the property and rental profit is halved.

In other words, it’s better to have a bigger slice of a smaller pie.
 
Sarenco said:
On an after-tax basis, you would be far better off holding personally, even if the value of the property and rental profit is halved.
Click to expand...
We're getting into the hypothetical, but say it was 2 rentals using post-income tax, vs 4 of them within a company structure. Would he really have got mortgage approval, on top of his PPR, for an additional 2 especially being a contractor? There might not have been any pie!
 
I think you’re missing the point.

Two rentals held personally produce a better after-tax outcome than four rentals held within a company, assuming all four rentals produce an equivalent net income.
 
Sarenco said:
I think you’re missing the point.
Click to expand...
I do get your point and I agree having BTLs outside a LTD company is better than inside a LTD company. At the same time BTLs inside a LTD company are better than no BTLs outside it. It's unlikely he would received approval for 2 BTL mortgages on top of his PPR mortgage if he couldn't use company cash and a company structure to borrow for them.
 
I don’t understand - why would the company structure be of any comfort to a lender?

He still has a PPR mortgage regardless.

In any event, I don’t really agree that having BTLs in a company is better than having no BTLs at all. On an after-tax basis, the reward is very, very slim for the risk involved.

He would have been far better off contributing to a pension and investing in property if that’s his thing.
 
You must log in or register to reply here.
Back
Top