Singing Pig

Does it make sense for tax purposes to set up a LTD Co for property rental income? What are the benefits?

Also, how do you go about it, and what costs are involved?

The short answer is its no longer viable for BTL unless you have some very specific circumstances or a particually aggressive growth plan.

Longer answers and detailed computations available on a fee basis!

Just briefly James, why is it no longer viable?

Also what level of rental income justfies it?

The benefits are largely those of lower taxes on income vs higher capital gains tax.

It isnt a question of at what level, but a question of strategy. If you are looking to aggressively re-cycle all your profits on rental incomes into buying more property it can work by leveraging up to a bigger portfolio and only paying 19% on the recycled profits (as opposed to 40% as a HR tax payers). You will probably pay more tax as a percentage of total profit in the longer term with CGT and the costs of removing funds from the limited company but hopefully a bigger slice of a bigger pie, meaning you get more £££ in your back pocket in the longer term.

If you are Mr small investor with say 5 property portfolio, the costs of running the BTL company plus getting stung heavily on the tax when you come to sell will probably outweigh the benefits of it. There used to be a strategy for Mr Small which made it worthwhile due to the starting rate of corp tax of 0%, but this doesn’t work any more. I should also point out the very low yields currently on offer also seem to be resulting in no income for many clients as there are often substantial losses rather than profits on rental income for recent purchases.

If you are looking at building a portfolio of hundreds of properties whilst also earning a higher rate of tax on your day job then there is certainly potential here due to the tax efficient recycling of funds, however its not good for most people. Due to the complexity of the whole tax system there are always instances when it may be beneficial to use a company if you set it up right, but it is very much on a “person by person” basis.

Regards,

What of creating a portfolio of properties abroad?  Property prices are rising at a very sexy rate in some countries .... and im sure that the tax agreement between these countries play a big part in strategy with regards to tax.

What would be the best way to invest to minimise tax?

Im thinking of purchasing in Brazil (0.3% income tax :)), Hungry, Poland and Prague & perhaps Germany.

Any general advice on this would be greatly appreciated.

Well unless you are non-domiciled in the UK, then the basic rule is that anything you are taxable on your worldwide earnings, although overseas taxation levels are taken into account so it is unlikely that you will be "double taxed". In practice this means that if you normally pay 40% in the UK, and have already paid 25% locally, you only pay 15% more on the UK, so a total of 40%.

If you only pay 22% in the UK and have suffered 25% locally, you don’t pay any more in the UK.

The upshot of which is that investing in a "low tax" country is likely to make no difference to your tax bill.

It is actually a lot more complicated as the way in which profits are computed varies wildly, especially with capital taxes, and you need to take detailed advice in both countries.

Regards,