Most efficient tax set up?

[u768211]

Hi everyone,

Newbie question here.

My wife and I are planning on selling our home, and downsizing slightly. This is due to the arrival of our baby daughter, and the related nursery fees!

I would like to lower our risk on the main home, and therefore would like to extract some of the capital on our home, with a view to buying a flat to rent out when the housing market calms.

I would not look to gain an income on a rental basis, I would just be looking to offset the mortgage payments. But, I would be looking to realise a gain on the property after x years, with a view to increasing our property portfolio via remortgage, and new purchases.

What is the most tax efficient way to do this? The question in short, How do I avoid paying as much tax as possible? PLC, LTD, LLP, or just owned by us? I have heard that as a company you can just put the profits back in to that co. and then pay yourself dividends, which are only open to NI payments?? Is this correct, surely too good to be true? Isn't it the other way around?

Apologies for ignorance.

Any advise greatly received.

James.

[Huw Williams]

I would suggest that you delay making any decision until you are ready to invest. If nothing else there is a budget coming up soon. And interest rates may have changed substantially.

The main issues are tax and national insurance and administration costs.

On the tax front, company tax rates are lower than personal rates, so a company may well be a good option. An LLP is a partnership - so the money is yours personally - so you pay tax at personal rates.

National insurance is less of an issue since there is no national insurance chargeable on property income and if the income arises in a company there is no national insurance on any dividends paid by the company.

Administration costs for a company are likely to be higher than for personal ownership. These would include accountancy fees, but possibly also bank charges (a company would have to have a business bank account not a personal one) and interest charges (as the company could not borrow as part of your house mortgage and house mortgages are generally the lowest interest finance available).

When you are ready, I would be happy to look at this in more detail.


Huw Williams
www.huwwilliams.co.uk