Greater Profits from a Non Profit making Buy to Let

[Glorefi]

Hi I wanted to confirm whether my concept of being able to make more money from my business if it was non profit making is correct.
I have sold a number of my own properties to my buy to let company for which I am the only director and now my company is owing me quite a bit.
Does anyone know how possible it is to convert a registered LTD company into a non profit making firm in order for me to make higher repayments to myself. Are there any repercussions?
thanks

 

[gj]

I think you are missing something here

If you have sold the properties to your company, the money it owes you can be drawn without any tax implication - as it is your money. Of course, by transferring them in the first place you may have made a gain which is taxable, but given that that has already happened, there is nothing much you can do about that now.

Not sure what you think you can do to make profit in a non profit company. A not for profit company is usually a company limited by guarantee, so profits cannot be distributed to the "owners" ( as there are no shares on which to pay dividends).

Perhaps you could say what it is that you are trying to achieve


Graham

 

[Glorefi]

thanks. the rental from these properties are only limited. In FY04 the rentals came to 15K, after 5K expenses I was able to draw the balance of 10K tax free. But FY05 may see figures of up to 20K or more so after about 5K expenses, the tax man will be looking at his 19% cut before I can draw any money. The optimum that the company can now achieve is 36K in rental which would be nice to pocket before the tax man gets his hands on it. In addition, I wanted to turn into a Housing Association were it is a requirement to be non profit making. I guess in so doing I wont have any claim in the profits, on the eventual sale of the business assets ie the properties.

 

[gj]

Ok - a housing association is, I believe, set up to assist people with housing either rented or joint ownership. The idea is that the association ploughs the profit back to provide more housing etc. This sounds like a no no for you, as you wish to get the profits out, both on the rental profit and also the gain in the value of the properties.

You were lucky that you were previously able to get the profit out tax free when the starting rate of tax was 0% and there was no "dividend tax", because the Chancellor really got it wrong when he introduced the 0% tax, and it took him 2 years to make a change, which sort of put it back how it was, without him saying he was reversing the change he had made 2 years earlier!

Generally, you should expect to pay 19% tax on company profit, which is not bad. Any dividends you take which put you into higher rate tax, will then suffer additional tax, so that the effective tax rate is close to 40%.

We have done quite a bit of work on working out the best structure for people with properties as well as employment, looking at the long term position. It depends on what your aims are over the long term as to what is the best strategy.

Send me a pm if you would like some further guidance along these lines.

Regards


Graham

 

[Glorefi]

Thank You, the 10K I recieved was not as directors dividend but as the only money I could take out which is a fraction of the over 100K the company still owes me as a result of the sales I made which I am entitled to tax free. I just think taking the first 10K each year over the years will be a slow process of releasing the gains locked in the properties and I would not mind finding faster ways without exactly selling the business at this early stage. Any ideas?