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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15975
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Can you help? I have a couple of commercial rentals and own

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Can you help? I have a couple of commercial rentals and own another business which I take a minimum wage from and any other income in dividends. The commercial properties are owned by myself and my father-in-law. All income earned on these properties are paid to the bank for repayment of the loans. No actual income is received from these rentals. Therefore on an annual basis the accounts show and income of approx £15000 per year each and we have to pay tax on these so-called earnings each year. This income has to be listed on my self assessment form and tax credit forms despite not physically receiving any income. I have been through the appeal process with the courts for this to not be included in my tax credits but it was ruled against me. Therefore, we are now in the region of £8000 per year down on tax credits and tax payments we have to make on this income of £15000 which is not actually received into the household.
Can you advise please?

I'm afraid that there is nothing you can do whilst the properties are owned by you and your father in law personally. The fact that you have chosen to use the income to repay the mortgages is your choice and has no relevance to your tax and tax credits situation.

You could put the properties into a limited company where you would only be taxed on income you draw from the company in the form of salary or dividends. That should also help with your tax credits situation, though this is the subject of some controversy with HMRC where income is allowed to roll up in a company so the owner can claim tax credits and child benefit. The company would pay corporation tax on profits up to £300,000 per annum at 20% on but the capital repayments would not be a tax deductible expense.

There could be Capital Gains Tax implications, Stamp Duty Land Tax implications and mortgage lender implications as a result of transferring the properties to a company and you would be well advised to have an accountant or tax adviser do some in depth calculations before you went ahead with such a plan.

I hope this helps but let me know if you have any further questions.

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