From: Ronald Raygun 
Subject: Re: Holding Buy-To-Let property-  best method?
Newsgroups: uk.finance
Date: Sun, 25 Jan 2004 10:52:44 GMT

john boyle wrote:

> In message <3nCQb.8758$2U1.95557832@news-text.cableinet.net>, Ronald
> Raygun  writes
>>Yes he might, but I've excluded that possibility by stipulating the
>>assumption that the recipient is not a HRTP, nor would adding 10/9 of
>>the divi to his other income make him one.
> 
> But at the tinme of payment of the divi, the recipient couldnt be sure
> of that,

He could if he pays it to himself at the right time, towards the end
of the tax year, when he knows what his other income for the year is.

> therefore a rider needs to be added that the divi is
> potentially taxable.

Well, if he's sure, he's sure.  But if not, then fair enough,
because the effect can be worse than he might expect:

Captain Bird's Eye has bank interest coming in to cover at least
his personal allowance and 10% band, and then some.  Now he pays
himself a dividend from his limited company through which he runs
his children's parties and TV commercials, being careful that the
grossed-up divi takes him just to the higher rate threshold and not
a pound over.  Unfortunately, he'd forgotten about £1000 profit from
sales of records of sea shanties.

At worst, he reckons he'll just have to pay £400 tax on the record
sales, but in fact he'll be paying £220 on them plus £225 on the
£1000 of GU divi which now unhelpfully sticks out above the threshold,
won't he?  That'll put a right shiver up his proverbial timbers.

>>This is a private investor wondering about wrapping his BTL
>>venture in a company.  Only the IR book matters, and it says there is
>>no tax to pay, which means they're tax free.
> 
> The original quote is
> 
> "
>> Also dividends- they're not "tax free" are they?
> 
> They are if you're not a higher rate taxpayer.
> 
> Otherwise, you pay 25% on the extent that they are above the HRT
> threshold, bearing in mind that they (or rather 10/9 of them) may
> themselves push you over that limit.
> 
> "
> 
> My point is that something that can be described as being 'tax free'
> (such as income from an ISA) is not the same as something that pays a
> benefit which is 'potentially taxable but might not be if your income is
> small enough'.

To say that something is tax free *subject to certain conditions* is
equivalent to saying it's potentially taxable, so I can't see what
you're getting het up about, since I didn't say or imply they were
unconditionally tax free.  Will Sir kindly aim his varifocals at
the "if" in "They are if...".