Setting up a "company" for rental porperites.

Hollister11

Just say i was a normal person. I have a house I live in with my family, and a few rentals all with mortgages. Would it be possible to transfer the rentals into a holding company, with me as the only shareholder, in order to pay the 12.5% tax, instead o the 52% tax, or is this illegal ?

wandatowell

Pretty sure if it was possible people would have done it.

Off the top of my head I'm guessing you'd have to have a minimum amount of properties.

Harvey Normal

Hollister11 wrote: »

Just say i was a normal person. I have a house I live in with my family, and a few rentals all with mortgages. Would it be possible to transfer the rentals into a holding company, with me as the only shareholder, in order to pay the 12.5% tax, instead o the 52% tax, or is this illegal ?

You pay the 12.5% on corporate profits. If you then pay yourself income you are subject to income tax. So more tax.

You can't use the company credit card for personal use btw.

housetypeb

A self-administered pension scheme might be worth looking at.

http://www2.deloitte.com/ie/en/pages/deloitte-private/articles/property-investment-pension.html

Rabbo

Corporation tax and income tax are not interchangeable. People who run small businesses first pay income tax on the money they drawdown form the company then they pay corporation tax on any profits at the end of the year. There's no free lunch with Revenue!

Graham

Legal, yes. Sensible, almost definitely not.

It's not the law that stops most landlords doing what you suggest, it's just not economic in most circumstances.

endacl

Hard to say. We need to establish what a porporite actually is first.

endacl

In the future, if you were to sell the porporites, the company would be the beneficiary. Not you. The company couldn't sell them to you (the private individual) below market value, because, as a proprietary director, as you would be required under the companies act to act in the best interests of the company and its shareholder (you). This would mean that you (director) couldn't act in the interests of you (individual) to the detriment of yourself in terms of being a shareholder in...

It's complicated. If you sold them on the open market, then we'd have to open the can of worms labelled 'capital gains'...

endacl

Graham wrote: »

It's not the law that stops most landlords doing what you suggest, it's just not economic in most circumstances.

Actually, it probably is. See above for complications.

Graham

endacl wrote: »

Actually, it probably is. See above for complications.

There's nothing in your post that makes it unlawful to use a limited company to own rental property.

It most definitely is a list of additional complications that enforce the suggestion that it's a bad idea.

endacl

Graham wrote: »

There's nothing in your post that makes it unlawful to use a limited company to own rental property.

It most definitely is a list of additional complications that enforce the suggestion that it's a bad idea.

Lots of Property owners do. Look at any of the corporate letting agents managing properties around Georgian Dublin on behalf of limited companies. It becomes unworkable when the director of the company tries to tie things up at some point in the future. The company, in this instance, has no intrinsic value to be sold. It only has assets. Which are managed by a single director, who is the only shareholder. Who can't be gifted the assets by the company, who can't be sold them under market value, and who would be liable for CGT. The one individual here would be (a), the sole officer of the company, who's explicit responsibility is, under the Companies Act, to the company, (b), the sole shareholder, to whom the company, i.e. himself, has a fiduciary responsibility, and (c), a potential third party who seeks to benefit financially at the expense of the company. The problem is the assets, and who who would own them in the future, and by what means or mechanism. It's an ouroboros*

If the OP is planning to incorporate with a view to building a property empire that could be sold on as a going concern, that'd be a different story. It sounds more like a 'can I be a company and pay less tax?' scenario, though. Sure, if that were feasible, people who know enough to not have to ask the question on here would be doing it. And they're not.




* Fancy talk, for disappearing up one's own ar5e.

Tigger

housetypeb wrote: »

A self-administered pension scheme might be worth looking at.

http://www2.deloitte.com/ie/en/pages/deloitte-private/articles/property-investment-pension.html

I e done work for someone with one of these
He seemed to be a clever man

Lockedout2

Rental income in a company is taxed at 25% there is also a surcharge on "close companies" ie companies owned by 5 or less people of 15%. So the Corporation Tax rate is 40% not 12.50%,

The second issue is that in most cases the increase in value is subject to Capital Gains tax twice. This arises because the company has to pay CGT to sell the asset and the shareholder has to pay CGT to access the money.

So in most cases it simply does not make sense to hold rental property in a company.

MintyMagnum

What about putting property in a trust?

Mrs OBumble

Graham wrote: »

Legal, yes. Sensible, almost definitely not.

It's not the law that stops most landlords doing what you suggest, it's just not economic in most circumstances.

It's almost certainly the most sensible thing to do. Yes, there are additional compliance requirements, and corporate and income tax to consider. But it means that your own home is protected in the event of the company getting into financial trouble - eg because you're unlucky enough to get a few bad tenants all at the same time, so not be able to pay the mortgages.

Also, you don't have to pay yourself from the company in the same year that the income is generated. You can leave cash invested in the company and pay yourself at a later time when your regular income is going to be lower one year (eg because you're travelling or studying or taking parental leave or whatever) - and then the persnal income tax you pay on it is at the lower rate.

Professional legal and accounting advise is definitely required if you're considering this.

Graham

Mrs OBumble wrote: »

It's almost certainly the most sensible thing to do.

absolutely not

For most small scale property investors it is probably the single most tax inefficient way of organising your affairs.

As others have mentioned you pay increased corporation tax on any profits you leave in the company, more than likely a close company surcharge (additional tax on retained profits), the company pays CGT on disposals and then the investor pays tax on what's left when it is taken out of the company.

There are very specific circumstances that make buying property through a Limited company a good idea. Thinking your going to reduce your tax rate from 52% to 12% is not one of them.

Henry Ford III

MintyMagnum wrote: »

What about putting property in a trust?

Trustees pay income tax on the profits. No advantage at all there.

Lockedout2

Henry Ford III wrote: »

Trustees pay income tax on the profits. No advantage at all there.

And there is a 6% once off and 1% annual discretionary trust tax.