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
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Salary: 9,400
Tax: 0
Less NI: 203
Sub Total: 9,197
Employers NI: 240
Each LLP Partner
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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:
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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
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Rental income: 22,000
Basic tax @ 20%: 4,400
Sub Total: 17,600
Total income per person:
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Salary: 9,194
Rent: 17,600
Total Income after Tax: 26,794 per person
Effective Tax rate on total income: 14.7%
Replies (3)
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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
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.