"Tax Implications of Setting Up a Limited Company for Property Leasing and Renovations"

**"Tax Implications of Setting Up a Limited Company for Property Leasing and Renovations"**

I'm in the process of planning to set up a limited company with my mother to then go and lease her large commercial property and for me to lend funds to the newly formed LTD and renovate the property.

Afterward, we plan to sublet the property to multiple tenants. I've sought advice from accountants on this matter, and I understand that the income received by the new limited company won't be considered trading income, therefore subject to a 25% tax rate. Additionally, any accumulated funds within the company after 18 months might incur a 20% Close Company surcharge if not distributed.

I have two specific questions:
1. Is my understanding correct that the 25% tax rate applies after accounting for salary and expenses?
2. If my PAYE job salary is €25,000, and I receive €14,000 from the newly formed company, does the additional €14,000 simply become part of my total earnings (€39,000) and, consequently, be liable for the 20% tax rate?

I'd appreciate insights and advice from anyone with experience in similar situations or knowledge of tax regulations. Thank you!"

You need to talk to a tax consultant on this and do a financial model with tax impacts. There is lots going on here from a tax viewpoint and don't forget vat. My first question is why use a company in the first instance?

Thanks for the reply @dublin67 I have but I will be arranging to meet with them once again. From what I understand My Mother Would receive Her rental payment as the Head Landlord then there is a max deductible salary you can draw. Any additional monies beyond that it is considered a distribution and therefore a dividend that then is Taxed at Dividend Withholding Tax at 25%?

Question, Let's say I earn €25.000 PAYE, When you receive a Dividend lets say €11.250 and the first €1250 is Tax free under the threshold. Then you pay the 25% DWT tax on the remaining €10.000. Is that remaining €7500 added to your PAYE €25.000 giving you a Gross salary of €32.500 & therefore 20% marginal rate on that entire amount.
Or
Is it the case that there is a DWT credit that is applied & it is 20% marginal rate only on the PAYE €25.000?

I also hope to loan the company funds & subsequently be able to withdraw the funds back out trough a Directors loan over time.

Thanks again @dublin67

flatlettings said:

I'm in the process of planning to set up a limited company with my mother to then go and lease her large commercial property and for me to lend funds to the newly formed LTD and renovate the property.

Click to expand...

This sounds really complicated and unnecessary.

Is this correct?
1) Your mother owns a property.
2) You and your mother will set up a company.
3) The company will pay rent to your mother for the use of the property.
4) The company will borrow money from you to renovate a property it does not own.
5) You will sub-let the property to other tenants.

What could possibly go wrong?

Brendan

@Brendan Burgess Thanks for the reply
1-5.Yes

I could lease the property from her & then sublet the property either.

And how will the money you spend refurbishing a property you don't own be treated?

I would recommend the following
1) You lend the money to your mother
2) Your mother refurbishes the property
3) She lets the property
4) You manage it and she pays you accordingly.

I presume that you will inherit the property at some stage?

Brendan

@Brendan Burgess
Thanks for the comment
If was to lend my Mother the funds would she be restricted in paying me back in full within the first year?

Giving a loan and repaying it have no tax consequences.

If you don't charge interest and it's long term, it could be deemed a gift.

Brendan