These "trusts" For Btlers - Any Auditors Out There With A View?

[Hullabaloo82]

So if I've understood this, the double entry for these things will be as follows. Let's use an example of a property where a tenant pays £1000 per month on a property with a capital repayment mortgage of £800 per month. From the company side;

Rent due;

DR debtor 1000

CR I & E 1000

Rent received;

Dr cash 1000

Cr debtor 1000

Cash to owner to cover mortgage;

Dr I & E 800

Cr creditors 800

Dr creditors 800

Cr cash 800

Leaving 200 each month gross profit to be taxed at the corporation tax rate (less some inevitable deductions).

I haven't split the mortgage payment into principal and interest here because if the liability is with the owner still, how can these be anything other than straightforward revenue transactions?

From the owner side;

Mortgage due;

Dr creditor 400 (principal)

Dr I & e 400 (interest)

Cr cash 800

Cash from trust;

Dr cash 800

Cr I & e 800

Now, looks to me there like the owner's I & e account is showing a £400 profit there. I'm not a CTA but I assume the incorporation relief accounts for the resulting income tax liability?

I assume these people will still have to have a buy to let mortgage and so should be liable for tax on anything above the 20% relief on the interest element of the mortgage? Can't see how transferring the beneficial interest will do anything to change the tax liability here unless the assets and liabilities themselves transfer to the company; substance over form and all that? Then the company is liable for the interest and the profit increases but presumably the lenders won't allow this to happen. Also, if they do transfer to the company, particularly in the south east, won't some of these have sufficient assets to warrant a statutory audit? Would be funny to see the BTLers get hit with a 5 figure audit fee and a couple of school leaver associates poking around for a week or two on top of everything else.

[worzel]

What's this trust thing you speak of?

Either way, as an accountant, not sure how your figures work, mind you have had a beer. How much of the repayment is interest and how much is capital.

So if I've understood this, the double entry for these things will be as follows. Let's use an example of a property where a tenant pays £1000 per month on a property with a capital repayment mortgage of £800 per month. From the company side;

Rent due;

DR debtor 1000
CR I & E 1000

Rent received;

Dr cash 1000
Cr debtor 1000

Cash to owner to cover mortgage;

Dr I & E 800
Cr creditors 800

Dr creditors 800
Cr cash 800

Leaving 200 each month gross profit to be taxed at the corporation tax rate (less some inevitable deductions).

I haven't split the mortgage payment into principal and interest here because if the liability is with the owner still, how can these be anything other than straightforward revenue transactions?

From the owner side;

Mortgage due;

Dr creditor 400 (principal)
Dr I & e 400 (interest)
Cr cash 800

Cash from trust;

Dr cash 800
Cr I & e 800

Now, looks to me there like the owner's I & e account is showing a £400 profit there. I'm not a CTA but I assume the incorporation relief accounts for the resulting income tax liability?

I assume these people will still have to have a buy to let mortgage and so should be liable for tax on anything above the 20% relief on the interest element of the mortgage? Can't see how transferring the beneficial interest will do anything to change the tax liability here unless the assets and liabilities themselves transfer to the company; substance over form and all that? Then the company is liable for the interest and the profit increases but presumably the lenders won't allow this to happen. Also, if they do transfer to the company, particularly in the south east, won't some of these have sufficient assets to warrant a statutory audit? Would be funny to see the BTLers get hit with a 5 figure audit fee and a couple of school leaver associates poking around for a week or two on top of everything else.

[Hullabaloo82]

As I said in my original post, from the company perspective, there is no principal/interest split because under the proposed incorporation scheme for btlers to dodge the 'tenant tax' the company doesn't own the asset, just the beneficial interest to which the tax is attached so the transactions are just straight to revenue.

As far as I understand it, the scheme that's being set up for btlers basically says if you transfer the beneficial interest to the company you're somehow not liable to pay income tax on your btl rental revenue.

I'm dubious about whether hmrc will stand for this and would be interested to know if there's any CTAs / tax auditors out there with an opinion on whether this stands up.

[eek]

It won't work but that won't stop the smooth talking salesmen getting a lot of customers. Can you provide a link I'm happy to show it to some people who know more than me.

I've seen an awful lot of this in the contracting world. It was fine for a year or two then when HMRC started to get interested the bills that appeared were very large. HMRC treated the payments their received as the finally taxed amount so what was £100 before tax in the customers eyes is £100 after NI and tax in HMRC's eyes. That means the customer got a tax bill for somewhere between 50% to 100%+ of the money received..

Lets assume the contractor got £100

From the contractor point of view

Untaxed income - customer receives £100.

NI to pay from £100 say £10

Income tax to pay from £100 say £40...

Unexpected tax bill £50 + interest + penalties

(of course the contractor hoped that they had avoided all that)

HMRC's view

post tax income £100.

pre tax income £200 (NI not paid at 10%, income tax not paid at 40% total 50%)...

NI to pay on £200 £20

Income tax to pay on £200 £80

Unexpected tax bill £100 + interest + penalties

The issues I can see HMRC playing with for fun and cruelty....

1) HMRC will try and show the income is £1800 not £1000
2) HMRC will not allow deduction of any expenses on that income. Some time in 2020 they will get a very unwelcome letter
3) is the mortgage valid. Somehow I doubt it

Edited June 2, 2016 by eek

[65243]

I would suggest not posting any sort of link to this. We're not here to provide free publicity for these schemes, or to help BLT muppets reduce their tax bill

Suffice it you say it won't work. The government isn't stupid.

[honkydonkey]

The government is stupid in almost all areas, but making sure they get their cut from the proles is not one of them.

[justthisbloke]

I would suggest not posting any sort of link to this. We're not here to provide free publicity for these schemes, or to help BLT muppets reduce their tax bill

Suffice it you say it won't work. The government isn't stupid.

Is there a site that actually describes the method? Last time I looked at 118, it all seemed a bit vague - with everything being explained once you paid x thousand.