Reducing income tax to 8% using CGT

Reducing income tax to 8% using CGT

Didn't find your answer?

UPDATE:

I see now that I am calculating incorrectly using CGT instead of income tax.

This question is wrong - please ignore...

My partner and I run a small business and are looking to minimise our personal tax liability. 

We are planning to purchase a commercial property as an LLP.

We will let the office (LLP) to our LTD @ £50,000 per year

Considering that the office will be purchased outright, we are looking to reduce personal tax by taking majority of our income from the capital gains of the rent.

Instead of us each paying a large salary, are thinking is to generate income through Capital gains instead:

Each LLC Director

---------------------------

Salary: 9,400

Tax: 0

Less NI: 203

Sub Total: 9,197

Employers NI: 240

Each LLP Partner
---------------------------

Rental income: 24,000

CGT exemption @ 10,600 = 13,400

Less CGT charge @ 18%: 24,000 - 10,600 = 2,412

Sub Total: 21,588

Total income per person:
------------------------------------

Salary: 9,194

Rent: 21,588

Total Income after Tax: 30,782 per person

Effective Tax rate on total income: 8%

LLC employers tax liability: £480

CORRECTED CALCULATION USING INCOME TAX INSTEAD

Each LLP Partner

---------------------------

Rental income: 22,000

Basic tax @ 20%: 4,400

Sub Total: 17,600

Total income per person:
------------------------------------

Salary: 9,194

Rent: 17,600

Total Income after Tax: 26,794 per person

Effective Tax rate on total income: 14.7%

Replies (3)

Please login or register to join the discussion.

avatar
By occca
12th Feb 2014 08:25

Rent isn't a capital gain

Rent is taxable income, not a capital gain

A capital gain will arise on the profit made when the building is sold

Thanks (0)
By K81
12th Feb 2014 08:26

Hmmm

...not sure you are grasping CGT correctly.

Thanks (0)
By stratty
12th Feb 2014 08:26

Unless I am missing something

Your idea of how taxation works is wrong.

If your purchase a property and then rent it to a business you are liable to income tax on the property income.  That is assuming you hold the asset personally.

Capital Gains would come in to play when you dispose of the asset.

May I suggest that you take professional advice on this issue.

Thanks (0)