Reply to: Buying Buy To Let through LTD

[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.

[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.

[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.

[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.

[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]

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.

[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...

[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]

Even popular media is coming around to the impact of flawed Osborne policy: Ireland&#39;s scrapping of buy-to-let tax is &#39;warning to Britain&#39;

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 your Ireland information is wrong (details are important I bet you don't have them). When S24 arrived there it resulted in rents dropping, its being reintroduced alongside a new MIRAS scheme to try and get some demand to remove some of the excess supply in their market... But thanks for proving my point that asset classes should treat the entire market equally...

As I really can't be bothered to discuss this here and bore everyone head over to Housepricecrash we've not had a landlord there for a while....

Even popular media is coming around to the impact of flawed Osborne policy: Ireland&#39;s scrapping of buy-to-let tax is &#39;warning to Britain&#39;

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.

[eek]

I suppose there are those that do and those that talk about doing. I'm happy with where I am. As always things could have been better and challenges have been faced but we have learned and evolved and grown. A month's void won't impact us much because unlike greedy & foolish investors we choose not to over-leverage and tend to be prudent in our assessment of situations. No one knows what the future brings but you have to do your best to prepare for it and not be reliant on anyone else.

Talking about learning from history, you might want to read up on the 'rental boom' in Ireland caused by their equivalent of S24 - a devastating tax policy that is now being reversed by the Irish government because of the impact it had on tenants and on the economy as a whole. Learn from history, move on and prepare for the future.

Sorry but your Ireland information is wrong (details are important I bet you don't have them). When S24 arrived there it resulted in rents dropping, its being reintroduced alongside a new MIRAS scheme to try and get some demand to remove some of the excess supply in their market... But thanks for proving my point that asset classes should treat the entire market equally...

As I really can't be bothered to discuss this here and bore everyone head over to Housepricecrash we've not had a landlord there for a while....

[ChimpMaster]

You need to check your history. Miras really disappeared well before 2000 it was worth peanuts well before then, in fact it was the changes to make it per property back in 1988 that was one cause of the house price boom in 88 and the crash in late 89...

As for voids how much profit do you lose on a property if its empty for a month. If you are getting a £1000 a month rent, 1 month empty is going to cost you £1000. Voids are what kills landlords with loans more than anything else (been there done that in the past)... That's not a problem if you own the flat outright, its a big issue if you have a maxed out loan costing £600 a month.

I suppose there are those that do and those that talk about doing. I'm happy with where I am. As always things could have been better and challenges have been faced but we have learned and evolved and grown. A month's void won't impact us much because unlike greedy & foolish investors we choose not to over-leverage and tend to be prudent in our assessment of situations. No one knows what the future brings but you have to do your best to prepare for it and not be reliant on anyone else.

Talking about learning from history, you might want to read up on the 'rental boom' in Ireland caused by their equivalent of S24 - a devastating tax policy that is now being reversed by the Irish government because of the impact it had on tenants and on the economy as a whole. Learn from history, move on and prepare for the future.

[eek]

MIRAS was abolished in 2000, so it was previously the case that home owners could offset mortgage interest against income. Clearly the government removed this 'perk' for one simple reason: to increase tax-take from a trapped group.

The reasoning and implementation of S24 is the problem. It is retrospective, it will impact people who have invested prudently many years ago and those who are accidental landlords and those for who it is a long-term investment or a side income.... though perhaps as contractors we should not so surprised by the government using their time machine. It will lead to tax due on losses, and many will ask how that makes sense.... at least zero-rate that scenario!

I disagree strongly with your comment about voids and 'destroy returns'. Rental demand will remain until building supply is increased, so tenants will suffer the initial fallout. The disconnect in government thinking is as always present - their initial greed, slaying of the apparent 'golden goose' rather than nurturing a growing economy - will again lead to greater discord in society.

Anyway good luck to you. Hopefully perhaps prices will fall, allowing many to buy to live in or again invest for the long time. Or maybe the falsely propped up stock market will collapse, allowing us to buying dividend yielding stocks for the long term. Any way you look at it, it's a Ponzi scheme but we all need to do something to take care of ourselves in the long term - because sure as hell the government isn't going to be there for you save for a 'heating' allowance when you're in your old age.

You need to check your history. Miras really disappeared well before 2000 it was worth peanuts well before then, in fact it was the changes to make it per property back in 1988 that was one cause of the house price boom in 88 and the crash in late 89...

As for voids how much profit do you lose on a property if its empty for a month. If you are getting a £1000 a month rent, 1 month empty is going to cost you £1000. Voids are what kills landlords with loans more than anything else (been there done that in the past)... That's not a problem if you own the flat outright, its a big issue if you have a maxed out loan costing £600 a month.

[ChimpMaster]

Sorry but S24 is a perfectly reasonable tax designed to remove a bias in the housing market that has allowed your average BTLer to out bid any first timer from buying a house. Yes it may impact people who have over leveraged or over paid for houses but I'm sure the market will fix that as people sell.

Personally I agree with Kenneth Clarke and there should be no tax relief on loans at all and there definitely should be none on asset classes where some people can claim tax relief (a BTLer) while others cannot (a house owner). So while you believe its an unfair tax, I don't believe it goes far enough....

As for S24 increasing rents, it may for those landlords who want increased voids and voids in BTL destroy returns very very rapidly...

MIRAS was abolished in 2000, so it was previously the case that home owners could offset mortgage interest against income. Clearly the government removed this 'perk' for one simple reason: to increase tax-take from a trapped group.

The reasoning and implementation of S24 is the problem. It is retrospective, it will impact people who have invested prudently many years ago and those who are accidental landlords and those for who it is a long-term investment or a side income.... though perhaps as contractors we should not so surprised by the government using their time machine. It will lead to tax due on losses, and many will ask how that makes sense.... at least zero-rate that scenario!

I disagree strongly with your comment about voids and 'destroy returns'. Rental demand will remain until building supply is increased, so tenants will suffer the initial fallout. The disconnect in government thinking is as always present - their initial greed, slaying of the apparent 'golden goose' rather than nurturing a growing economy - will again lead to greater discord in society.

Anyway good luck to you. Hopefully perhaps prices will fall, allowing many to buy to live in or again invest for the long time. Or maybe the falsely propped up stock market will collapse, allowing us to buying dividend yielding stocks for the long term. Any way you look at it, it's a Ponzi scheme but we all need to do something to take care of ourselves in the long term - because sure as hell the government isn't going to be there for you save for a 'heating' allowance when you're in your old age.

[eek]

Seriously? I'm assuming you aren't affected by S24 or don't realise it's full impact. It is a completely flawed implementation of a tax change. Now I am not affected so much by it because I don't leverage to a great extent and my plan has always been to pay off the loans over time so as to have a reasonable retirement. But even then, I can see what a bad idea S24 is and how it will hit many average investors.

Increased rental cover is simply a symptom of S24. It will lead to higher rents, in fact it already is - hence why S24 is being termed the Tenant Tax in media circles.

I don't know much about Basel3 - I doubt it will be allowed to impact borrowing in the way you describe but I stand to be corrected and will take an interest in how things develop. Personally, I would always advocate repayment loans anyway. On that note, there was no need for that intellectually-challenged Osborne to implement S24: he could quite easily have specified all BTL loans to be capital+interest, much like residential loans. That would have had the desired impact of slowing the market and reducing risk. Makes one wonder what his actual objective was.

Sorry but S24 is a perfectly reasonable tax designed to remove a bias in the housing market that has allowed your average BTLer to out bid any first timer from buying a house. Yes it may impact people who have over leveraged or over paid for houses but I'm sure the market will fix that as people sell.

Personally I agree with Kenneth Clarke and there should be no tax relief on loans at all and there definitely should be none on asset classes where some people can claim tax relief (a BTLer) while others cannot (a house owner). So while you believe its an unfair tax, I don't believe it goes far enough....

As for S24 increasing rents, it may for those landlords who want increased voids and voids in BTL destroy returns very very rapidly... I've seen enough evidence to say that supply and demand determines what the rent paid is nothing else (Aberdeen at the moment is an example where the highest rent paid for a 2 bedroom flat is 30% less than it was a year ago as demand has dropped).