Buying Buy To Let through LTD

[eek]

Even popular media is coming around to the impact of flawed Osborne policy: Ireland's scrapping of buy-to-let tax is 'warning to Britain'

I suppose people believe what they read/see but education is available all around us from those that have real life experience. It took me a while to learn to learn this but so many people are willing to help.

The fact that you peruse the pages of Housepricecrash speaks volumes; it is the equivalent of Leap2020 for stock market investors and one must be wary of such extreme viewpoints. I won't say any more because I feel for you, I really do, and I wish you all the best as a fellow contractor.

Sorry but I would much prefer to trust economists and others who argue that no mortgage interest should be tax deductable...

As for why I visit HPC it actually has better discussions on macro economics than virtually anywhere else I know. Plus it allows me to laugh at some of the tax advisors who seem to have decided that the next market to scam is landlords hit by S24 (and believe me their schemes are dodgy in far more ways than the contractor cons). It's also good at allowing me to watch the slow implementation of changes by banks that still aren't properly regulated as highlighted by this example from Nationwide last week:

Some banks will still give you a 2 year fixed deal based on a 5% interest rate and 125% PRA (that's £98,000 per £500 of rent btw) even though they know when you come to renew the renewal will need to be based on a 5.5% rate and a 145% PRA (max £72,000 per £500 of rent). Granted its perfectly legal but its hardly fair on your unsophisticated landlord - its perfectly legal though as BTL lending is commercial not personal...

And given prices are set on the margin by the person willing to borrow most (see http://www.bankofengland.co.uk/resea...016/swp619.pdf it's good bedtime reading) the fact the people who could borrow the most can no longer borrow as much should tell you everything you need to know about the direction of the market in the next few years.

And as prices drop and returns start approaching 10% again as they were back in the late 90s I'll buy a property or 3 (nearly picked one up for cash last month)...

[ChimpMaster]

Sorry but I would much prefer to trust economists and others who argue that no mortgage interest should be tax deductable...

As for why I visit HPC it actually has better discussions on macro economics than virtually anywhere else I know. Plus it allows me to laugh at some of the tax advisors who seem to have decided that the next market to scam is landlords hit by S24... It's also good at allowing me to watch the slow implementation of changes by banks that still aren't properly regulated as highlighted by this example from Nationwide last week:

Some banks will still give you a 2 year fixed deal based on a 5% interest rate and 125% PRA (that's £98,000 per £500 of rent btw) even though they know when you come to renew the renewal will need to be based on a 5.5% rate and a 145% PRA (max £72,000 per £500 of rent). Granted its perfectly legal but its hardly fair on your unsophisticated landlord...

Meanwhile I'll sit with the £40,000 HPC gave me when Brexit won alongside the six figures I made buying and selling gold as I wait for the inevitable to occur...

The inevitable will always eventually occur, but much like life and death it's what you do in-between that matters.

But seriously Eek I haven't said anything against you so no need to tell me about your many riches. I've lost more than 3 times more in bad choice investments than you've made there, such is life. I simply wished you the best, but Congratulations.

[eek]

The inevitable will always eventually occur, but much like life and death it's what you do in-between that matters.

But seriously Eek I haven't said anything against you so no need to tell me about your many riches. I've lost more than 3 times more in bad choice investments than you've made there, such is life. I simply wished you the best, but Congratulations.

I had deleted that bit but I wanted to show that that site is far better than a one trick pony. I think those who've been around a long time and listened to the people on it can have done very well out of it...

[Freelancer Financials]

Hi All

Not sure if this has already been discussed on here (did a quick search) or if this is the correct location but any help appreciated.

Looking to buy my first BTL and with the new BTL changes there is talk of buying through a LTD as it is better to be able to offset expenses etc.

So my question is - Does anyone have experience if it is more beneficial from a tax perspective to use my IT Ltd company to purchase through, or should I setup a dedicated LTD company or neither and just keep it personal ?

I may buy one more later but that may be it, if it helps.

You can't simply buy properties under your IT Ltd. You need to set-up a new LTD as a special purpose vehicle (SPV) or a subsidiary.

If anyone is looking at investing in a Buy to Let property through a Limited Company, it’s worth noting that you need to understand the advantages, disadvantages and responsibilities associated with company ownership before making a decision.

We get lots of clients asking whether they should set-up a Limited company for this purpose. For each case the response can differ depending on personal circumstances, future intentions, and availability for mortgage finance to Ltd companies for the purchase of B2L properties. You need to be mindful that a LTD company is required to file accounts too.

Mortgage brokers are not tax specialists so it’s important to speak to your accountants as they understand your personal circumstances and financial situation.

But the main advantages of using a LTD company are:

Higher tax relief – from 2017 to 2020 the amount of BTL tax relief individual landlords can claim back will be progressively cut from a maximum of 45% to 20% for top rate taxpayers. However, this change does not affect LTD companies (for now that is). So if you’re a top rate tax payer, the tax payable via LTD company van potentially be lower than tax on individual tax.

No tax on dividends ≤£5,000 for individuals from April 2016, the Dividend Tax Credit will be
replaced by a new tax free Dividend Allowance of £5,000. This means you can potentially
receive tax free dividend income from your investment properties.

There is no income tax should you reinvest company profits to secure further properties. So you could potentially grow your BTL portfolio more quickly within a Limited Company as there will be no income tax on the retained profit, thus allowing more cash to re-invest. Although corporation tax is payable on trading profits (20%; 2015/16; reducing to 18% by 2020), this is lower than the higher income tax rate (40% for £31,786 to £150,000; 2015/16)

The main disadvantages of using an LTD Company are:

No Capital Gains Tax (CGT) allowance when the company sells a property – whereas individuals selling a property would have £11,100 CGT allowance (2015/2016).

Higher mortgage rates – most lenders charge higher interest rates and fees for LTD companies compared to individual

The additional cost of running a LTD company.

A reduced choice of lenders and mortgages – many lenders do not offer mortgages to LTD companies and those that do have a smaller range of deals.

It is important to know that that transferring existing properties from individual name to LTD company structure is not that straightforward either. It’s definitely more complex than purchasing new properties within. Transferring existing properties to LTD structure would most probably make you liable to pay Capital Gains Tax and also stamp and duty land tax (SDLT) on the transfer.

But like I said, each individuals situation is different and should seek advice from a tax specialist or their accountant before deciding.

I hope this has been useful.

[TanyaWWW]

I recommend a SPV

Hey Howdy,

I googled to the ends of the earth and back before investing and went with a SPV - but I had a fair stash of retained funds waiting to be invested and plan on getting 4 properties at least.

Even with just 1 - it depends on what your situation is - if you plan to renovate and sell in the not too distant future, maybe opt personal and pick up the £11K capital tax exemption, if you're going to hold for the long term, then set up a company and that allows you to only be taxed on profit and also only at 20%. It also has the huge advantage of being able to put your retained funds to work without being taxed 35% whilst withdrawing them as dividends

Either way - google it, there's loads of info out there. A lot of people mention the increased cost of lending, but for a 25% deposit and an interest-only mortgage I can get 2.29% with a £2K setup fee and £895 broker fee - PM me if you want the details

Best of luck

[Freelancer Financials]

Hey Howdy,

I googled to the ends of the earth and back before investing and went with a SPV - but I had a fair stash of retained funds waiting to be invested and plan on getting 4 properties at least.

Even with just 1 - it depends on what your situation is - if you plan to renovate and sell in the not too distant future, maybe opt personal and pick up the £11K capital tax exemption, if you're going to hold for the long term, then set up a company and that allows you to only be taxed on profit and also only at 20%. It also has the huge advantage of being able to put your retained funds to work without being taxed 35% whilst withdrawing them as dividends

Either way - google it, there's loads of info out there. A lot of people mention the increased cost of lending, but for a 25% deposit and an interest-only mortgage I can get 2.29% with a £2K setup fee and £895 broker fee - PM me if you want the details

Best of luck

It really does depend on each person's individual circumstances, goals and financial situation. So speaking with your accountant is strongly recommended. Also, what happens if there is a reversal on the taxation rules regarding landlords, this is a possibility. So think very carefully before going down the SPV route.

[Maslins]

Even with just 1 - it depends on what your situation is - if you plan to renovate and sell in the not too distant future, maybe opt personal and pick up the £11K capital tax exemption, if you're going to hold for the long term, then set up a company and that allows you to only be taxed on profit and also only at 20%. It also has the huge advantage of being able to put your retained funds to work without being taxed 35% whilst withdrawing them as dividends

Careful, I'd suggest if the above bold bit is true then it wouldn't be CGT as it'd likely be considered trading.

[simes]

A lot of incredibly detailed information there.

Thing is, a rental property is a long term gig and while we are discussing the current and very immediate future tax climate, no one knows what's going to happen 20+ years down the line.

My step forward in this story, has always been to do what's best for right now, and in 20 years figure what the next best move is.

I have a mix of personally owned and Ltd owned rentals. The Ltd owned one was considered the right move as by the time this flat popped up, I was already at the personal 40% tax bracket, and taking £40k out for a deposit would have cost me a further £30k in tax (I think I thought at the time)

My model for rentals is to pay off all the mortgages and have a pension fund coming in unaffected by fluctuating interest and mortgage rates. This, as you see, doesn't really bring resale values and tax hits into the story at all.

Horses and courses.

Been a great read.

[ChimpMaster]

<snip>
I have a mix of personally owned and Ltd owned rentals. The Ltd owned one was considered the right move as by the time this flat popped up, I was already at the personal 40% tax bracket, and taking £40k out for a deposit would have cost me a further £30k in tax (I think I thought at the time)

My model for rentals is to pay off all the mortgages and have a pension fund coming in unaffected by fluctuating interest and mortgage rates. This, as you see, doesn't really bring resale values and tax hits into the story at all.

I guess by 'pension fund' you mean rental income from the unencumbered properties. So yes, the portfolio will then not be subject to fluctuations in interest rates and also less impacted by property specific taxation like S24 (for better or for worse).

You could have an income of say £100k a year split between you and your wife and not even break into the 40% tax bracket when costs are factored in. Not a bad pension income

So long as rental demand remains decent then it's all OK.

My retirement plan is under review. I will retire from contracting in 2017, at which point I will go through MVL and then use the proceeds either to pay off most of the BTL loans, or use the proceeds for commercial or housing development or the like. The easy route would be to pay off most of the BTL loans and enjoy the rental income, but that would be a bit boring.