The directors trust,the money farm,EFRBS,profit retention,tax planning,corporation tax planning,IHT advice,how to reduce tax,corporate tax reduction,business planning,financial planning,financial advice,finances,UK income tax,tax strategy
The directors trust,the money farm,EFRBS,profit retention,tax planning,corporation tax planning,IHT advice,how to reduce tax,corporate tax reduction,business planning,financial planning,financial advice,finances,UK income tax,tax strategy
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To summerise
Study 4 - Buy to let residential property - personal or EFRBS.
Individuals frequently purchase residential property as a long term investment. The purchases are often highly geared but in the hope of the rent covering the mortgage cost and the opportunity of long term capital gain, to many they seem a safe option and are regarded as "pension" funds.
We have already seen that compared to taking a bonus, the use of an EFRBS can allow the individual to access his profits up to 51% more efficiently (case study 1). This means that when looking at a property purchase there are simply more funds to invest.
By the EFRBS owning a Company to make the investments the tax on income, when exceeding interest payable on the mortgage, is subject to only 21% tax rather than the individuals 40% Income Tax. Capital gains are taxed as low as 21% within the EFRBS owned company.
On modest assumptions (details available on request) we have compared a propery purchase based on a Company having £100,000 of gross profit to utilise. The comparison looks at the situation after 20 years.
Portfolio Valuation
Individual ownership £328,374
EFRBS ownership £603,692
We have already seen that compared to taking a bonus, the use of an EFRBS can allow the individual to access his profits up to 51% more efficiently (case study 1). This means that when looking at a property purchase there are simply more funds to invest.
By the EFRBS owning a Company to make the investments the tax on income, when exceeding interest payable on the mortgage, is subject to only 21% tax rather than the individuals 40% Income Tax. Capital gains are taxed as low as 21% within the EFRBS owned company.
On modest assumptions (details available on request) we have compared a propery purchase based on a Company having £100,000 of gross profit to utilise. The comparison looks at the situation after 20 years.
Portfolio Valuation
Individual ownership £328,374
EFRBS ownership £603,692
The use of EFRBS increases wealth by 83.84%
Even higher increases apply if we compare the value of the portfolios after the property has been sold namely 102.93%
On death assuming good planning the EFRBS leaves 306.40% more.
Even higher increases apply if we compare the value of the portfolios after the property has been sold namely 102.93%
On death assuming good planning the EFRBS leaves 306.40% more.