Buying properties with LTD

[otellomix]

Hi everyone,

I'm the only director and only shareholder of an LTD which over the years has been able to accumulate some liquidity. I've been looking into opening another LTD for the sole purpose of buying and renting properties and I wanted to use some funds from the primary LTD. It seems the way to go is a loan from the primary LTD to the secondary LTD and I have a couple of questions about this:
- do I have to set an interest rate on the loan or this can be interests free?
- do I have to have a repayment plan in the agreement or I can just outline a number of years and pay everything at the end of the term? (ie. I move 100k now, the repayment terms is 25 years and in 25 years I move the 100k back)
- isn't there another way to use funds from the primary LTD without the need of paying them back? I've been reading about setting up a Holding company as parent of both the LTD, but I'm not sure if it would be possible and especially if it would be worth it?

Thanks a lot.

[Bodger]

This doesn't asnwer any of your questions, but I'll add a snag to your list if your planning on leveraging with mortgages:

Most lenders will require that deposit funds come from the director / shareholder of the SPV, not from another Ltd company. They also won't allow layering (holding company owning shares in the SPV).

Check the lending requirements for most BTL lenders (normally most easily found on the intermediaries pages on their websites.

In addition, if you are going to leverage, commercial BTL mortgage rates are up at 6.95 to 9.25% at the moment. This often makes the stress test for a BTl mortgage very difficult. Most will require that projected rental income meets 145% of the mortgage payments at the current rate + 2%.

[Keanu2020]

I looked at something similar and ran into no end of problems. I wanted to buy a property through a separate property LTD as you suggest and target summer rentals. Really hard finding competitive mortgage products for a property LTD, let alone one that wanted to do holiday rentals, almost no products exist, and those that do had silly rates, before the latest jump. Worked through it with my accountant who was help looking at options. Scraped it all in the and using the funds for other ideas / investments.

[TheGreenBastard]

Aldermore provide mortgage products for the situation you describe, my setup is exactly the same, primary Ltd. and a BTL SPV.

Don't want to give financial advice, but I'd wait it out, the differential with interest rates and asset depreciation means even with the horrible rental cost inflation there's not too much money to be made and too many unknowns with legislation.

[hobnob]

One other potential snag: look up "associated companies". E.g.
New "Associated Companies" Rule for CT Tax Relief Rate - Contractor UK Bulletin Board

[otellomix]

Bodger I've already found a lender, they are ok with the loan and everything. It's me that I'm not sure I'm ok with the loan
TheGreenBastard Yes I've applied with Aldermore. Thanks for the not advice but no, I'm not waiting, if I had to wait for the perfect moment I'd wait forever, there's always something new in terms of legislation/inflation/crisis/etc coming up.
hobnob I had no idea about this, I'll forward to my accountant, thanks!

[northernladuk]

Have you looked at the full lifecycle of this property i.e. the tax/cash handling at the end? It's always been the advice of this board to do it personally. Entry in to the BTL looks very attractive using company money but it doesn't look quite as good once you look at disposing of the property and distributing the funds.

Make sure you look long term as BTL via LTD hasn't been attractive for quite awhile let alone recent changes.

Take note of the thread that Hobnob linked. Maslins who comments on there is a contractor accountant as well as running MVLOnline so understands the full lifecycle that a standard accountant might not.

[otellomix]

I came to this forum full of initiative and 3 questions. Got 0 answers and I don't want to buy any property anymore

[jamesbrown]

I don't want to buy any property anymore

So it was useful, afterall

[otellomix]

Have you looked at the full lifecycle of this property i.e. the tax/cash handling at the end? It's always been the advice of this board to do it personally. Entry in to the BTL looks very attractive using company money but it doesn't look quite as good once you look at disposing of the property and distributing the funds.

Make sure you look long term as BTL via LTD hasn't been attractive for quite awhile let alone recent changes.

Take note of the thread that Hobnob linked. Maslins who comments on there is a contractor accountant as well as running MVLOnline so understands the full lifecycle that a standard accountant might not.

Could you elaborate a little bit? Are you referring to taxes when and if I will sell the property in the future? If we assume the mortgage will be extinguished, there will be capital gain. Anything I'm missing? I will have dividends tax if I decide to pull money from the LTD but I would have that anyway.