Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
Using a limited company will not absolve you from having to pay Stamp Duty Land Tax (SDLT) on the purchase. If you operate through a limited company any profit made will be taxed at the Corporation Tax (CT) rate of 20%. If you are a director of the company any emoluments paid to you must be paid under PAYE arrangements and whilst the basic rate of income Tax (IT) is 20% it can rise to 40% if sufficiently high. The following expenses are normally allowable against rental income [source: Which]:
'Allowable expenses a landlord can claim
The most common types of expenses you can deduct are:
The expense should be incurred wholly and exclusively as a result of renting out your property.'
Motoring expenses in connection with property management arte equally allowable, but not private use.
I do hope that I have been able to shed some light on your situation.
You are referring to the 3% surcharge on SDLT for multiple domestic dwellings ownership. This applies equally to corporate bodies as to individuals.
Your net property income will be aggregated with your other income for IT purposes. Of course, if it is left in the limited company and not withdrawn it will suffer only CT.
Expenses which cannot be absorbed in current year create a loss situation which can be carried forward, but only against future rental income. The proportion of expenses relating to your occupation would not be allowable against either IT or CT.
Dividends are taxed, but the first 5K are tax free.
When the property is sold if there is a gain it will be subject to taxation. For an individual it will be subject to Capital Gains Tax (CGT) after deduction of your non cumulative Annual Exempt Amount (AEA) of 11.1K and possibly up to 40K of Lettings Relief (LR) also. For a company CGT does not apply, any gain forming part of the trading activities.
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When the company is would up there may be a surplus which would be a gain in your hands subject to CGT, but as you are going out of the business then Entrepreneurs' Relief would apply which limits the tax to a flat rate 10%. If the company takes a mortgage the interest element only would be deductable save for an element for your own personal occupation.
If you die the company would be valued and included in your assets for Inheritance Tax (IHT) purposes. IHT is levied at 40% flat rate on values over 325K, inflated by any charitable or inter spousal bequests.
You can only get Entrepreneurs' Relief if you are going out of that business.
Who ever buys a property pays SDLT. Watch out for for your lender who may refuse a transfer.
Thank you for your support.