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Strategy and S24


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Hi, I'm Sid and this is my very first post on Property Hub!

 

I have been reading a lot of post on here and learning a great deal as I start my side career in property investment.  I've been listening to the Property Podcast and would like to say what an excellent job Rob Dix and Rob Bence are doing. I got a hell of a lot of episode to catch up! But it's all good.

 

I have two questions and I hope the Property Hub community can help me answer: 

 

If your chosen strategy is to replace your wage as quickly as you can then how do you achieve this through  a limited company? The reason why I ask this question is to do with Section 24 because I limited companies are not affected by the phasing out of mortgage tax relief.

 

Second question, this is closely linked to the first and is  regarding tax, investing through a limited company makes it difficult to withdraw income because of double taxation so how can this be mitigated in order for this strategy (replacing your wage) to work?

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Hi Sid,

 

I am going to go straight in here as i would question whether buying in a Ltd company was the right choice for you. I know there are a lot of factors to consider but if you are looking to replace your income them i would look at it from this angle:

 

The tax changes effect everyone who pay income tax (which you will do if you have a rental income), however due to a 20% rebate it actually only effects those on the higher tax band (40% & up). This means that if you are planning to give up the day job your entire income will be from property which means that you could position yourself so that the new tax changes only effect you slightly.

 

For example, once you have given up your day job, and assuming you hold all of your properties in your own name, all of your property income will be taxed as income tax. This means that up to £40k of income (this isn't the exact threshold) will effectively not be effected by the tax changes as it will still be in the basic tax rate of 20% (counteracted by the 20% rebate).

 

The benefit of this is that you are only taxed once and the cashflow is better as it isn't stuck in a company. The negative is that the risk is all yours as you don't have a company to protect you.

 

I am not an expert at this so its always worth getting another opinion.

 

I also believe that if you setup a Ltd company you will be liable for corporation tax (20% but going down). Following this you can then issue yourself with dividends which are currently tax free up to £5k with a 7.5% tax for basic rate tax payers.

 

Just my thoughts but just remember that a company isnt for everyone and i think some people are panicking and setting up companies when in reality they are worse off.

 

Ben

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Hi Sid,

 

I'm also looking to invest in property in order to replace a wage, and have come to the conclusion that a ltd company isn't the best way to do this. I would suggest:

  1. Do not set up a ltd company until your property income reaches the higher tax bracket (which is set to increase to £50k in the years to come)
  2. Any property that you purchase that is likely to tip your earnigs over and above this, buy in a ltd company.
  3. By the time you have reached bullet point 2, the government may have scrapped the tax changes all together anyway. I'm sure I read that there have been murmurings along these lines.

I am not a tax adviser, and am more than happy to be challenged on this view by someone more knowledgeable than me. However, my basic research combined with the excellent free course the Rob's have done (http://thepropertyhub.net/should-you-use-a-limited-company-to-invest-in-property/) have led me to this conclusion.

 

Cheers,

 

Chris

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