Buying Buy To Let through LTD

[ChimpMaster]

That's the bit that breaks my heart. So unfair why big businesses and the Elite get away with paying so little

Read my post above and as corroborated by Jess above too.

[northernladuk]

That's the bit that breaks my heart. So unfair why big businesses and the Elite get away with paying so little

Don't let the general public hear you saying that. Even taking the tax hit you are using a system to minimise it so paying less than your everyman so you are part of what you think is unfair.

[Jessica@WhiteFieldTax]

That's the bit that breaks my heart. So unfair why big businesses and the Elite get away with paying so little

Don't believe everything you read in mainstream media.

I know the upfront tax hit hurts, but there is a lot of merit in paying the tax now on extracting the cash from yourco at current clause, than paying tax on a BTL that has doubled over 10 or 15 years.

I'd agree with Chris Maslin, personal is simpler in the long term. There is a good reason why most accountants hold real estate personally.

[northernladuk]

There is a good reason why most accountants hold real estate personally.

So they can let their blonde mistresses they met on internet dating sites stay in them? Or is that just in Leeds?

[Maslins]

I'd agree with Chris Maslin, personal is simpler in the long term. There is a good reason why most accountants hold real estate personally.

Do they? I have zero clue on stats beyond anecdotal evidence of a tiny handful of accountants I know.

I thought the trend for accountants half interested in property was to get their pension to buy a commercial property for use as their office.

If your statement is true I wonder if that is down to a stereotype of accountants, being risk averse/pessimists, so if/when they do get a BTL they'll want to keep equity high and debt low. That way if there ever was a property crash, it'd be annoying but nothing more than that. Compare that to the more wideboy investor type, trying to keep every property they own at 90% LTV to rapidly expand their portfolio. Whilst prices go up, it's a winning strategy. If prices were to go down though...

Anyway, certainly not saying you're wrong, I'm just interested! My personal situation, my wife and I own the commercial property we operate from, which is our only property investment beyond our home. We were aware of the pension option at the time we were looking to buy...but our pension pots had a combined value of about a tenner so it wasn't viable for us!

[ChimpMaster]

<snip> There is a good reason why most accountants hold real estate personally.

<snip>
I thought the trend for accountants half interested in property was to get their pension to buy a commercial property for use as their office.
<snip>

Holding personally might have been the least painful option in the past but will soon be the cause of many a bankruptcy where LTVs are 75% or higher and where the person has income into the 40% tax threshold. I cannot fathom why so many property investors are ignorant of Section 24 taxation - including many people I personally know and who have decades of experience in property.

Commercial through SIPPs is fast becoming popular. Certainly something I would have done if I had a pension of any sort (I only have around £50k worth from previous employments).

[Jessica@WhiteFieldTax]

Do they? I have zero clue on stats beyond anecdotal evidence of a tiny handful of accountants I know.

I thought the trend for accountants half interested in property was to get their pension to buy a commercial property for use as their office.

For sure, I only have anecdotal evidence as well.

I own a hybrid office / residential building which I both occupy and let, and for various reasons its done through a LLP with personal and corporate partners. Maximum flexibility.

The SIPP type arrangements for a main trading property leave me nervous on the restrictions when its time to move or sell up.

[Jessica@WhiteFieldTax]

Holding personally might have been the least painful option in the past but will soon be the cause of many a bankruptcy where LTVs are 75% or higher and where the person has income into the 40% tax threshold. I cannot fathom why so many property investors are ignorant of Section 24 taxation - including many people I personally know and who have decades of experience in property.

Commercial through SIPPs is fast becoming popular. Certainly something I would have done if I had a pension of any sort (I only have around £50k worth from previous employments).

True there is a shake up coming, and as well as the changes in taxation my experience is too many people are exposed to interest rate cover on high LTVs. A few percentage points rise in interest rates could be a doubling of repayments, and I could think of several people I know who would struggle with that. So, yes, I suspect there will be some pain, and some bankruptcies, amongst the over geared, you are correct.

[ChimpMaster]

True there is a shake up coming, and as well as the changes in taxation my experience is too many people are exposed to interest rate cover on high LTVs. A few percentage points rise in interest rates could be a doubling of repayments, and I could think of several people I know who would struggle with that. So, yes, I suspect there will be some pain, and some bankruptcies, amongst the over geared, you are correct.

Section 24 is a complete disaster for property investments held in personal names. It will even lead to tax being due on losses. Lenders will not only increase interest rate cover (as you correctly say) but also look at the extra cost of S24 on one's portfolio, hence will not lend on (now) loss making investments, leading to a massive forced selloff. Good, some might think, but the end result, like any sharp change, will be awful for the economy and everyone in it.

The impact will be far greater than interest rate increases.

£100k mortgage
@ 2% = £424/month capital + interest over 25 years.
@ 4% = £528/month capital + interest over 25 years.
@ 6% = £644/month capital + interest over 25 years.

So even a 4% rise in rates is not a deal breaker for most.

Now I'm not an accountant, but I do like to read

[Jessica@WhiteFieldTax]

Section 24 is a complete disaster for property investments held in personal names. It will even lead to tax being due on losses. Lenders will not only increase interest rate cover (as you correctly say) but also look at the extra cost of S24 on one's portfolio, hence will not lend on (now) loss making investments, leading to a massive forced selloff. Good, some might think, but the end result, like any sharp change, will be awful for the economy and everyone in it.

The impact will be far greater than interest rate increases.

£100k mortgage
@ 2% = £424/month capital + interest over 25 years.
@ 4% = £528/month capital + interest over 25 years.
@ 6% = £644/month capital + interest over 25 years.

So even a 4% rise in rates is not a deal breaker for most.

Now I'm not an accountant, but I do like to read

Alas, I know some people where a 4% rise in interest rates is going to push them into negative cash flows on BTL before worrying about tax.

There are still some people out there very heavily geared, no matter how BoE try to encourage lenders to throttle back.