How to take money out of a limited company

How to take money out of a limited company

There are two good reasons for using a property investment limited as a UK landlord. The property investment Co can purchase buy-to-let properties, and the mortgage interest and finance costs can be offset against the company’s profits. This is in contrast to the Section 24 mortgage interest relief cap, which prevents UK buy to let landlords from offsetting mortgage interest and finance costs against their rental income.

There are many ways directors and shareholders can take money from a UK property investment Co. Some ways money may be taken out of the limited company may help reduce the corporation tax bill, but some may not.

With tax efficiency in mind, this article will show you how to take money / cash  out of an LTD whilst being tax efficient.

Use our free online corporation tax calculator to see how much you need to pay to HMRC as a UK limited company owner.

Use a UK limited company if you invest in buy-to-let properties. Free property investment limited company set up with freezer shares and growth shares. SMART companies can save landlords thousands of pounds in tax.

Taking money out of a property investment LTD without paying tax

The key feature of using a property investment Co is that you only pay tax on the money you take out. A limited company will pay corporation tax. At the time of writing was 19%. If you do not take money out of the property investment LTD, you do not pay income tax.

This is the polar opposite of receiving income in your name. You will have to pay income tax if you are taking money in your name. The legal entity can be a tax haven until you need the money. Some may see limited companies as a pension nest egg for when their earnings deplete. This means you are taking money out of an LTD much later down the road.

A quick example of taking money out of a property investment company without paying too much tax

£8,840 Tax and NI free wages

£5,730 tax-free dividend payments

£14,570 personal allowance for 2021/22 tax year

£1,000 interest allowance tax-free (again, if you charge your company interest for directors’ loans)

£300 tax-free gift vouchers

£15,870 taken from your LTD tax-free

Readers of this article will be forgiven for thinking that the HMRC tax-free personal allowance for 2021/22 is £12,570. They would be right to challenge what we have written above. However, there is indeed the UK tax-free personal allowance of £12,570, but there is also an additional £2,000 tax-free dividends that may be taken out of a UK limited company provided that it has made profits.

Please note that wages are a business expense, and tax relief will help LTD owners to reduce their corporation tax bills. Taking dividends out of the legal entity may provide you with some tax efficiencies.

This is good information for you to know before taking money out of your LTD.

Landlords may need a buy-to-let mortgage when making investments into buy-to-let properties. Landlords might buy properties in their own name or a limited company

Taking wages from a buy to let company structure as a landlord

We will assume that you receive no other form of income in your name. You can take £8,840 (2021/22 tax year). You will now need to run a payroll system and notify HMRC that you are currently an employer. Taking money out of your legal entity requires thought and consideration to avoid costly mistakes.

You can do this by completing the HMRC form.

It is possible if you wish to have an easier life and not to run a payroll system to submit Real-Time Information (RTI) reports to HMRC. All you would need to do as a UK property investment limited company owner is to reduce the director’s salary from the above figures to circa £5,000. This is the threshold whereby HMRC do not require you to run a payroll system when taking money out.

Note that you will still be required to use a payroll system and submit RTI reports to HMRC if you have other employees and take £5,000 director’s salary.

 

Taking dividend payments from a property investment LTD 

You only pay dividend payments from post-tax profits or retained earnings from your property investment limited company. If your business has made a loss in a year and has no retained earnings, no dividends can be taken.

The first £2,000 dividend income is tax-free irrespective of how much you earn (for the tax year 2021/22 and beyond).

Any dividend income over £2,000 will be taxed as long as you remain a basic rate taxpayer (i.e. when you add together dividends and salary) at 7.5%. A basic rate taxpayer is an individual whose total income is greater than £50,270 in the 2021/22 tax year.

If you take dividends over £2,000 and are a high-rate taxpayer, you will pay a 32.5% dividend tax. 38.1% dividend tax will be paid as an additional rate for taxpayers. To be an additional rate taxpayer, you would need to earn more than £150,000. You need to consider HMRC payments when taking money from a legal entity.

Interim dividend payments from your property company 

Suppose you wish to release “interim” dividends to the shareholders to take full advantage of the dividend income allowance. In a particular tax year, you will need to make the money transaction (i.e. move money from the LTD to Director’s bank accounts). You will then prepare an “interim” dividend certificate per Director. This shows the value of the dividend income that shareholders receive. It will also show the date and sign it as an LTD director.

Please remember that you can only pay a dividend at an interim date; if your accounts showed your business to be in profit at that date. In addition, the dividend value is no more than 81% of the profit.

What documents are required for dividend distributions?

The Director of the company must write up a dividend voucher when taking money out of the legal entity and must show:

– Date

– Company name

– Names of the shareholders being paid a dividend

– Amount of the dividend

You must give a copy of the voucher to recipients of the dividend and keep a copy for your records when taking money out of your LTD.

Landlords may need a buy-to-let mortgage when making investments into buy-to-let properties. Landlords might buy properties in their own name or a limited company

 

Charging tax-free interest on property investment company director loan accounts

A shareholder or a director of a UK property investment Co can be owed money from the LTD. Let us take a look at how this might happen when trying to take money out of a Co

– £100,000 purchase of a buy-to-let residential property

– £75,000 is financed by a buy-to-let mortgage

– £25,000 is financed by the director/shareholder

At the year-end, it is possible and commercially viable for the said director/shareholder of the UK limited company to charge interest on the outstanding loan. Imagine that 6% interest is charged on the exceptional director loan account. 6% on £25,000 would equate to £1,500.

The £1,500 interest charged on the outstanding director loan account would become a business expense and reduce the corporation tax bill.

In addition, it is possible that some of the interest, if not all, is tax-free and not subject to income tax. This is because two main tax reliefs may be applied to UK directors. Taking interest from a legal entity is a great way to save tax.

£5,000 tax-free savers allowance 

£1,000 tax-free allowance on interest

 

How to take money out of a limited company

There are two good reasons for using a property investment limited as a UK landlord. The property investment Co can purchase buy-to-let properties, and the mortgage interest and finance costs can be offset against the company’s profits. This is in contrast to the Section 24 mortgage interest relief cap, which prevents UK buy to let landlords from offsetting mortgage interest and finance costs against their rental income.

There are many ways directors and shareholders can take money from a UK property investment Co. Some ways money may be taken out of the limited company may help reduce the corporation tax bill, but some may not.

With tax efficiency in mind, this article will show you how to take money / cash  out of an LTD whilst being tax efficient.

Use our free online corporation tax calculator to see how much you need to pay to HMRC as a UK limited company owner.

Use a UK limited company if you invest in buy-to-let properties. Free property investment limited company set up with freezer shares and growth shares. SMART companies can save landlords thousands of pounds in tax.

Taking money out of a property investment LTD without paying tax

The key feature of using a property investment Co is that you only pay tax on the money you take out. A limited company will pay corporation tax. At the time of writing was 19%. If you do not take money out of the property investment LTD, you do not pay income tax.

This is the polar opposite of receiving income in your name. You will have to pay income tax if you are taking money in your name. The legal entity can be a tax haven until you need the money. Some may see limited companies as a pension nest egg for when their earnings deplete. This means you are taking money out of an LTD much later down the road.

A quick example of taking money out of a property investment company without paying too much tax

£8,840 Tax and NI free wages

£5,730 tax-free dividend payments

£14,570 personal allowance for 2021/22 tax year

£1,000 interest allowance tax-free (again, if you charge your company interest for directors’ loans)

£300 tax-free gift vouchers

£15,870 taken from your LTD tax-free

Readers of this article will be forgiven for thinking that the HMRC tax-free personal allowance for 2021/22 is £12,570. They would be right to challenge what we have written above. However, there is indeed the UK tax-free personal allowance of £12,570, but there is also an additional £2,000 tax-free dividends that may be taken out of a UK limited company provided that it has made profits.

Please note that wages are a business expense, and tax relief will help LTD owners to reduce their corporation tax bills. Taking dividends out of the legal entity may provide you with some tax efficiencies.

This is good information for you to know before taking money out of your LTD.

Landlords may need a buy-to-let mortgage when making investments into buy-to-let properties. Landlords might buy properties in their own name or a limited company

Taking wages from a buy to let company structure as a landlord

We will assume that you receive no other form of income in your name. You can take £8,840 (2021/22 tax year). You will now need to run a payroll system and notify HMRC that you are currently an employer. Taking money out of your legal entity requires thought and consideration to avoid costly mistakes.

You can do this by completing the HMRC form.

It is possible if you wish to have an easier life and not to run a payroll system to submit Real-Time Information (RTI) reports to HMRC. All you would need to do as a UK property investment limited company owner is to reduce the director’s salary from the above figures to circa £5,000. This is the threshold whereby HMRC do not require you to run a payroll system when taking money out.

Note that you will still be required to use a payroll system and submit RTI reports to HMRC if you have other employees and take £5,000 director’s salary.

 

Taking dividend payments from a property investment LTD 

You only pay dividend payments from post-tax profits or retained earnings from your property investment limited company. If your business has made a loss in a year and has no retained earnings, no dividends can be taken.

The first £2,000 dividend income is tax-free irrespective of how much you earn (for the tax year 2021/22 and beyond).

Any dividend income over £2,000 will be taxed as long as you remain a basic rate taxpayer (i.e. when you add together dividends and salary) at 7.5%. A basic rate taxpayer is an individual whose total income is greater than £50,270 in the 2021/22 tax year.

If you take dividends over £2,000 and are a high-rate taxpayer, you will pay a 32.5% dividend tax. 38.1% dividend tax will be paid as an additional rate for taxpayers. To be an additional rate taxpayer, you would need to earn more than £150,000. You need to consider HMRC payments when taking money from a legal entity.

Interim dividend payments from your property company 

Suppose you wish to release “interim” dividends to the shareholders to take full advantage of the dividend income allowance. In a particular tax year, you will need to make the money transaction (i.e. move money from the LTD to Director’s bank accounts). You will then prepare an “interim” dividend certificate per Director. This shows the value of the dividend income that shareholders receive. It will also show the date and sign it as an LTD director.

Please remember that you can only pay a dividend at an interim date; if your accounts showed your business to be in profit at that date. In addition, the dividend value is no more than 81% of the profit.

What documents are required for dividend distributions?

The Director of the company must write up a dividend voucher when taking money out of the legal entity and must show:

– Date

– Company name

– Names of the shareholders being paid a dividend

– Amount of the dividend

You must give a copy of the voucher to recipients of the dividend and keep a copy for your records when taking money out of your LTD.

Landlords may need a buy-to-let mortgage when making investments into buy-to-let properties. Landlords might buy properties in their own name or a limited company

 

Charging tax-free interest on property investment company director loan accounts

A shareholder or a director of a UK property investment Co can be owed money from the LTD. Let us take a look at how this might happen when trying to take money out of a Co

– £100,000 purchase of a buy-to-let residential property

– £75,000 is financed by a buy-to-let mortgage

– £25,000 is financed by the director/shareholder

At the year-end, it is possible and commercially viable for the said director/shareholder of the UK limited company to charge interest on the outstanding loan. Imagine that 6% interest is charged on the exceptional director loan account. 6% on £25,000 would equate to £1,500.

The £1,500 interest charged on the outstanding director loan account would become a business expense and reduce the corporation tax bill.

In addition, it is possible that some of the interest, if not all, is tax-free and not subject to income tax. This is because two main tax reliefs may be applied to UK directors. Taking interest from a legal entity is a great way to save tax.

£5,000 tax-free savers allowance 

£1,000 tax-free allowance on interest

 

Book a call to see how we can help you.

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