To incorporate property or not?

[Johnny Be Good]

I am earning £60K a year from a combination of minimum wage and the rest in dividents from my main company.

I also have a second company a buy to let business with only one property in it.
I have loaned £280K of my own money to the buy to let company ( I bought a house with cash ) and receiving it back as pay back loan of £700 per month.

I will now be moving from my own personal residency to my new house and want to keep my old house for renting it out.
it can fetch £850 pcm in rent.

So, I have one house in the buy to let company( paid already in cash), my main home where i live is fully paid and owned outright and now moving to
my next home where I will have a mortgage.

What would you advice me to do:

1. Keep the first house in my own name and pay tax on the £850 rent.
2. Sell/transfer my first house to my Buy to let company so my buy to let company has 2 houses and pay 19% tax on it?
This house is only worth £125K so stamp duty won't be much.

The issue is that to get my money back from the buy to let company ( £280K ) i will need to reach the age of 82!

So the £850 of rent will be on top of my £60K salary/dividents payment from the first company.
So what is better, pay the extra tax myselfon top of the £60K, or sell the house to the company and pay 19% tax, where do I pay less tax? If i sell the house to my buy to let I can increase the loand paid back to £700 plus £850 per month.

I will not increase my salary from the main company £60k for a long time, I am content!

 

[Rawlinson Pryde]

You should seek some proper advice rather than from a forum. There are so many questions to ask to try and assist with your situation. I will list some of these that need to be thought about and then I would suggest you get in touch with an accountant.

You do not share if you are charging interest on your loan, which could be tax efficient.

What are your plans?
How old are you now? Any thoughts in IHT?
Do you have a spouse? What are their earnings?
Will you want to sell one later on in life and keep the other and the double tax implications?
How much is the house you are buying?
Why potentially have a mortgage on a personal property when you can have a mortgage on a buy to let property and get tax relief?
Have you considered the associated company rules and potentially higher corporation tax than 19% on your main company at least?

 

[Johnny Be Good]

I am 52 years old.
Not married, if married probably to a a broke one!
I will have 3 properties on my on and another 5 in 40% ownership with sister.
The house I am buying is £205000

My accountant came back to me today and said that i will have to pay 20 or 40% tax on the property if not incorporate. But If i sell it to my buy to let then only pay 19% at the moment.

I was confusing divident tax and personal tax. If i own it personally then any profits will be taxed on 40% as i am a higher earner. But if I incorporate I can start recouping my loan and pay only 19%...

No idea on inheritance tax. I have no kids. They can go to work and earn a leaving. My dad left me no property other than the skills to make money and fix things...

 

[numbersrule]

Johnny Be Good you should also allow for Capital Gains Tax in your financial analysis and comparisons. My understanding is that an individual is not liable for CGT when selling a property that they have nominated as their Main Residence. When nominating a Main Residence there are rules to comply with and you should seek professional advice. If you were to bring your first house into the company you would pay Corporation Tax on any increase in value when selling.
You say your first house is worth £125k and let's say you sell it to the company and you keep it in the company for 15 years by which time you would be 67. If it increases in value by 5% per year say it would more than double in value to £260k. So if you sold at that stage and crystallised the gain of £135k you would pay CT at 19% to 21.55% sliding scale, so a little more than £25k.
If you are receiving rent of £700 plus £850, where are you going to live?

 

[numbersrule]

On a separate point, it seems to me that you don't really need the buy to let properties. Therefore, the tax man will make you pay one way or the other. You have said you are comfortable content so why bother with all the inevitable hassle?