In other people's experience, would the Inland Revenue take the fact that I had maybe 10 BTLs and sold one without renting out first as evidence that I "Intended to rent it" - or would I need to actually rent it out first to stop any risk of it being classed as a trade rather than an investment?

Is anyone else using clever methods? I did think of taking out a mortgage with an ERC but this seemed an expensive way of doing it if there is a better alternative.

The full time job is getting in the way now, I want a war chest

I think that HMRC would clearly see what you where doing.

But I can't understand if it's a BTS why you would buy a product with an ERC?

Li

Sofie is exactly right, and even if you did buy intending to rent, the fact you have sold straight after shows a change in intention. This is so even if you never do another BTS - it's called an adventure in the nature of trade! Don't forget either that this site can be read by non members and having expressed an intention to clamp down on property investors the Revenue may well be looking at it! Bottom line is, and we always remind ourselves of this, if you're paying tax you must have made a profit, so it's all good!

Rachel

Precisely - with the idea that HMRC would think nobody is dumb enough to take out a mortgage with an ERC if they intend to immediately sell the property.

I would agree normally Rachel - but if I get pushed into the 40% tax bracket my other business will be down the toilet - and much as I hate it with a passion, it's currently paying the bills.

I'm not too worried about HMRC, I am a part qualified accountant (another way out of the day job but not for 3 years until I'm qualified) and the books for my Ltd are squeaky clean. I'm not looking for ways to evade tax but rather to minimise my liability legally, in order to have the means to make a career change.

I am in a Catch22 - I am desperate to get out of the 9 to 5 I do with my other business, but I can't do that without selling a property on - which means immediately my other business would become incapable of supporting me if anything went wrong with the property, if that sale was classed as income rather than an investment with CGT allowances.

Not a gamble that I can take as sole earner with a family to support :(

Li,

If your other business is operated in a limited company, just account for the BTS in the same ltd co, and you will not be paying 40% tax. You will be paying a small company tax on a trade transaction. However, profits will remain in the company until your earned income drops to a level that you can extract the profits at the lower small companies tax rate. This drives our accountant nuts, but I declare the relevant SIC codes on our Companies House declaration every year (property investment, IT consulting) so I don't see any legal or tax issues here. IR have agreed with me to date in accounting for property investing / trading and IT consulting in the same company.

If you don't operate your current business via a Ltd Co, it's time to think about doing so. I ran a comparison 4 years ago of the cost/benefit to a company of hiring permies versus contractors. For the hirer, it is cost neutral between paying a salary of £50K per year for a permie, or £350 per day for a contractor. For the contractor, the benefit is an additional 30% of net income / gross income when compared with the same permie position. This assumes that the Ltd Co has two director/employees each working in the company, and both drawing a nominal salary and taking dividends up to their 40% tax bracket allowance per year. Each case is unique, and singles are at a disadvantage to couples. In our case, my wife actually does work in the company (she picks up the paper pieces of my property dealings and keeps me on the straight and narrow of regular invoicing to clients). Doing props in the same company also goes a long way in keeping under the IR35 radar.

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Gerry, you're a total hero.

This is how I was originally going to do it when I got into property, and then I was told I couldn't... hence all my tax dilemmas. If you're already doing it, I guess you can!

I take a moderate salary and the rest in dividends, while keeping under the 40% tax bracket. The rest gets left in the company and I pay corporation tax on it. I've no problem at all leaving this money or any I might make from a BTS in the Ltd, I'm not looking for a quick cash fix, what I need is a safety net in the business to pay my normal wages and dividends and I am also looking for a war chest to get BTS property. This would kill two birds with one stone.

I haven't looked into this as I ought to as I was told in very early days by an investment company that "your property Ltd needs to be a vehicle solely for property". Guess I listened to the wrong people. Would you have any objection to me PM'ing you when I've rearranged the plan and running it by you?

If I can do this I will be a very happy (and much less stressed out) bunny!

Li,

By all means PM me. It may be better to call me directly, as I am sure you have 100 questions. Just a word of caution. Once we have had a chat, you need to run your idea via your accountant (if you have one), to make sure he knows what to expect in current or next year's books. it took me a long time to get my head around the business of legal owner (for mortgage lender) and beneficial owner (for tax purposes). As an example, when we buy a property, we always pay for all costs from the company (cheque or BACS transfer). One problem we recently solved was that the broker applies for the mortgages and uses our personal bank account details on the lender forms. Then when the mortgage completes, I call up the lender and ask to change the direct debit payments to our company account. That hasn't been a problem with BM, MX and others, but recently, we have a mortgage where the lender wanted a zilion documents from the company before making the DD change. In any event, the company bank account is getting complicated with consulting income/expenditure and property ins and outs, so we asked our bank to open another personal bank account called "G&S Pridham Property A/C" and will now transition all ins and outs to this account, but will include this account in our Ltd Co books. That, I think, finally solves our past issues, and I suspect will save some time and admin for additional properties. When I discussed this with our banker (Barclays) he said "yea, that's what a lot of our property investor clients do", so I felt I was not reinventing the wheel.

Call me on 01625 536624. I will be working most of this bank holiday weekend at the desk (just been on hols, so can't complain really - I got back to 103 snail mail letters, and have some bills to pay)

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