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I am a working professional, 42K income, currently renting a

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Hi, I am a working professional, 42K income, currently renting a place and subletting to other people. I consider to to buy 2 properties and rent them out, I will live in one of them. I wonder if opening a limited company will help for taxation, and if I can avoid stamp duties like that, and what personal expenses I can charge on the company for further reduction. Thank you
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Customer: housing related limited company tax advice

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

Customer: replied 1 year ago.
Hello, I am Belgian-Turkish in UK since May18 last year working as engineer in auto company.
I consider selling my flat in Turkey and buy 2 houses here with mortgage.My friend told me opening a limited company will reduce my income taxes, so I need a professional advice if this makes sense and what I can reduce, add my other charges as expenses (car, insurances). I plan to live in a room in these houses, so subletting each room is my target. Could you also tell me how many questions can I ask :)

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:

  • water rates, council tax, gas and electricity
  • maintenance and repairs to the property (but not improvements)
  • contents insurance
  • interest on a mortgage to buy the property
  • costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
  • letting agents' fees
  • legal fees for lets of a year or less, or for renewing a lease of less than 50 years
  • accountant’s fees
  • rents, ground rents and service charges
  • direct costs such as phone calls, stationery and advertising for new tenants

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.

Customer: replied 1 year ago.
OK, I Read somewhere this will help avoiding extra stamp duty for more than one house owners.Does it affect my employment? income, taxes etc or completely separate ?I think charging interest, council tax, bills are big plus to reduce taxes,
is it also possible to transfer tax deduction to next years if rental income not enough to cover them ?My living in the same property is a problem or not ?

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.

Customer: replied 1 year ago.
Hi, thank you. ***** take dividend from the Ltd. do I need to pay income tax on that ?When I sell the property and close the limited company without dividend, do I need to pay income tax on the value gain ?
Customer: replied 1 year ago.
ok I find out both are taxed

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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Customer: replied 1 year ago.
Ok, I am closing in :)
I need to see the benefit of limited company clearly.
When I sell houses and close the limited company in about 6 years, are there additional taxes for me?
Could you confirm 100% of mortgage interest is deductable for the company (as personal deductions will be reduced by 2020)And finally if I die, how is the company transferred as inheritance and will it be taxed ?

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.

Customer: replied 1 year ago.
If there is tax, Can I use this relief below if I register as in this example for a year before I sell them
I need to stop my other work-job it seems ?
Customer: replied 1 year ago.
ok, our mails crossed
I think thats all, ltd. seems to be beneficial with some extra work
Thank you for information.
Customer: replied 1 year ago.
Hi, one more
It might be risky to start with Ltd now.
Can I buy a place with first time buyer conditions to live in, and then transfer into a Ltd ?
Do I need to pay stamp duty ?

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.

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