Independent Tax Advice – Johnston Smillie

We are frequently asked this question and the answer generally depends on a number of factors.

The compliance requirements of a company differs enormously to an individual receiving rent in their own name.

Typically, we would need to know:

1. What are your long-term objectives?
2. What is the level of your other taxable income?
3. What level of profit would you expect to receive from your new property purchase?
4. Will you require to take out a mortgage or are you buying the property outright?
5. Are you married or in a civil partnership?  Do you have children?  Could a share of the property be put in their names?
6. Do you require the profits from the property, or can they be retained by the company/paid into a pension?

After an initial fact-finding meeting we would then produce a report demonstrating the potential tax liabilities throughout the lifecycle of the rental business.

There are many non-tax factors to consider when setting up a company, but at Johnston Smillie we can guide you through the process and highlight any issues to be considered.

There can huge long-term savings made from putting the correct strategy in place from the outset. 

This sort of tax planning will not work if your child is a dependent and under age 18. Any income will be taxable on the parent even if the property is in the child’s name.

There may also be implications for:

• Capital Gains Tax
• Inheritance Tax
• Land and Buildings Transaction Tax (LBTT) for Scottish properties or Stamp Duty Land Tax (SDLT) for acquisitions elsewhere in the UK.  The child may have to pay the ADS (or UK equivalent) when they are old enough to buy their own property
• It may restrict the child’s right to help-to-buy ISAs and similar products

The work involved in unravelling this sort of arrangement can be expensive.