Reply to: Property Investment

[Fred Bloggs]

22% soon.

[mossman]

Erm..thought it was 21%

Yes OK I forgot it went up a couple of years ago.

[Olly]

but if you're running your Ltd Co sensibly you only pay 20% corporation tax on your profit

Erm..thought it was 21%

[mossman]

Property

Pension schemes are an obvious rip-off. The carrot is that the money you put in is tax deductible, but if you're running your Ltd Co sensibly you only pay 20% corporation tax on your profit anyway. Companies that provide pension schemes don't do it free of charge, and they invest in things which don't always perform well, so you might start to feel that you'd have been better off paying the 20% tax when you see how your pension plan is performing.

Property was an obviously better alternative (whether it still is depends on what kind of crystal ball you use). You saved for a 15% deposit, borrowed 85%, and the rent from your tenants just about covered the mortgage payments. Say you bought a flat for £100K with a £15K deposit, ten years later (or less) it was worth £200K, so your £15K investment had grown to £200K minus the £85K mortgage = £115 in ten years. I think this probably outperforms the stock market. If you put money into a pension scheme, it's your own money, whereas if you go down the property route, in effect your tenants are paying your pension for you. Buy a few flats over several years and you've got a portfolio that's worth a lot more than any pension scheme that you are likely to accumulate.

The downside is that not everyone wants the hassle of managing rental properties, and the present time might not be the best time to buy property (I don't claim to know whether it is or not).

Back to your main issue, should you do it through your Ltd Co? The only advantage that can see is if you have a lot of money in your Ltd Co that you need to store somewhere, and you're using property as a place to store it.

Buying properties personally can be more tax advantageous e.g. if you are married and you buy properties jointly with your spouse, whenever you sell a property you've got two lots of capital gains tax allowance to use.

I am not an accountant, so best to discuss it with your accountant.

[MarillionFan]

Erm... They did ask specifics. They asked about investing in property through their limited companies. I believe the fact they asked this means they are already bought in to the idea of investing in property so didn't need to be told the benefits again

[northernladuk]

You can invest in property in loads of ways. This is a massive question but I'll mention these top line and you can ask me specifics on them if you require

Erm... They did ask specifics. They asked about investing in property through their limited companies. I believe the fact they asked this means they are already bought in to the idea of investing in property so didn't need to be told the benefits again

[Fred Bloggs]

Do you know, I once knew a contractor who didn't pay the VAT man(ie. spunked their money up on a champagne life style, he also leased a 70K sports car and bought a house)

He lost the lot, spent every day in the pub pissed while it happened. And all because he didnt pay the VAT.

Screw with the tax man by all means, but never ever the VAT Man!!!

We may have known the same bloke! More good advice.

[MarillionFan]

Good advice. I have never owned investment property directly. Last October I invested a few grand in my SIPP into a bricks and mortar (commercial property) unit trust. The sector had a terrible time the previous 3 years but the unit trust has made me ~18% since October and I think there's more to come over the next 3 to 5 years. The advantage is that you only need a couple of grand to invest and there's up front tax relief going into the SIPP. The downside is that this will never make you a zillionaire.

Do you know, I once knew a contractor who didn't pay the VAT man(ie. spunked their money up on a champagne life style, he also leased a 70K sports car and bought a house)

He lost the lot, spent every day in the pub pissed while it happened. And all because he didnt pay the VAT.

Screw with the tax man by all means, but never ever the VAT Man!!!

[Fred Bloggs]

Good advice. I have never owned investment property directly. Last October I invested a few grand in my SIPP into a bricks and mortar (commercial property) unit trust. The sector had a terrible time the previous 3 years but the unit trust has made me ~18% since October and I think there's more to come over the next 3 to 5 years. The advantage is that you only need a couple of grand to invest and there's up front tax relief going into the SIPP. The downside is that this will never make you a zillionaire.

[MarillionFan]

To both posters.

There are a number of ways of purchasing property as an investment. I personally believe that as a contractor investing your money now when it's sunny is the cleverest thing you can do.

I've worked with loads of contractors who have spunked their money up against the wall on fast cars, hotels, business class & a champagne life style. Nice when it lasts, but it wont last.

You can invest in property in loads of ways. This is a massive question but I'll mention these top line and you can ask me specifics on them if you require

1) Personally
2) Through your LTD Company (commercial)
3) Through your own pension (commercial)
4) Through your own Investment Company(Ltd)

The benefits to purchasing using your money in the LTD seem like a good idea. But, you will struggle to raise enough money to do so, banks will need to see proof of a good investment within a commercial property (along the lines of a tenant in situe with a lease) or you need to use the property for your own use(ie your own offices). If you want to buy your own office, then you can raise this way through your own LTD based on your business, if it's investment it's based on the return of the business. In both cases 10-15 years mortgages are the norm and you will pay upto +4% on base, with a hefty fee.

If you wish to go down an investment route on say Residential then you can either do personally or you would have to set up a new company specifically for the purpose. Benefits to wrapping in a LTD means your protect income from your own tax (ie 40%) but you still need to pay Corporation tax on any profits over time. Personally, you move into the CGT and declaring the income. Best is personally purchasing commercial property in your own name. CGT rates are different and the return is higher. 7-10% versus 3-4% at present on Residential.

Also if you have a large pension fund you can manage yourself and purchase commercial property through this.

It's not an exhaustive list and I am not professing to be a professional in the area, but I have researched over the years own my own commercial property and recently sold out my BTLS.

At the end 90s/early noughties I purchased 3 houses and rented them all out living out of hotels as I contracted. At the time I had a plan to buy a BTL every two months until another contractor pointed me at the incredible returns he was making on tech stocks. He persuaded me to give up on the 7% growth plan I had for houses and I ploughed £50K cash into the Dot Com bubble and stopped buying houses. I lost the lot!!!

So the lesson here is diversify, get a pension, buy some shares, buy some artwork or antiques, stick some gold under the bed, buy an extra property, get a plan B, build a warchest, and buy some bonds!

But whatever you do, don't let the bloke next to you persuade you to put all your eggs in one basket.

HTH

BTW : I've made a lot of good calls over the years and some equally bad ones. Always research and always go with your gut, but never regret

[northernladuk]

Well, different horses of course. In defence of the producers (who I have no affiliation of any description with) they have been producing a series of guides for many years and they do regularly update them. Of course with easier access comes much greater cynicism.

I rather imagine a sensible chat with your accountant about your circumstance and objectives and what may be the best way of meeting them would cost rather more than 25 quid.

Where I found it very useful was keeping an open mind. I was considering placing 3 properties I happened to own at the time into a company - thinking their may be benefits. I was able to establish that (for me at least) it wasn't worth pursuing. I didn't consider that 25 quid wasted. Quite the opposite in fact. If I had done what I planned it was likely to have cost me significantly on disposal.

You are, of course, perfectly entitled to your view, it's just a bit different to mine.

Yeah I appreciate what you are saying. It's not so much a view it is just I am nervous and sceptical and you have jumped in and had a pleasant result.

25 quid to find out it isn't worth doing is indeed worthwhile. If I did think about going forward then more money is worth spending on it.

Despite Le Ros whining it appears that none of the threads gave any positive answers to the property question so seems there are better options

[ASB]

I appreciate what you say but am less convinced the more I think about it. These guys want to give you good news to get you excited to make you think the 25 quid was worth it. You would be well pissed if you paid your money and it proved it wasn't a good idea wouldn't you.

It is this type of bias that would steer me away from paying for this type of thing. Session with my accountant would be much more satisfying I think.

Well, different horses of course. In defence of the producers (who I have no affiliation of any description with) they have been producing a series of guides for many years and they do regularly update them. Of course with easier access comes much greater cynicism.

I rather imagine a sensible chat with your accountant about your circumstance and objectives and what may be the best way of meeting them would cost rather more than 25 quid.

Where I found it very useful was keeping an open mind. I was considering placing 3 properties I happened to own at the time into a company - thinking their may be benefits. I was able to establish that (for me at least) it wasn't worth pursuing. I didn't consider that 25 quid wasted. Quite the opposite in fact. If I had done what I planned it was likely to have cost me significantly on disposal.

You are, of course, perfectly entitled to your view, it's just a bit different to mine.

[ASB]

I found this which might help too.

http://forums.contractoruk.com/accou...rty+investment

As for spamming this wonderful forum wiith new/already answered questions... see if I care!

Ignore the questions if you've seen them already.

When your client ask you about .Net 3.5 you tell him to buy a 1.1 book cause everything is in there already?

I think the point is that a little research might enable you to ask a sensible question. The answer to your question is simply "yes".

Does that help? I doubt it.

It's a bit like - contrary to popular belief - you can actually expense anything you want through your company. That would include high class hookers and loads of coke. I'm not advocating this, it could some fairly unpleasant tax consequence - but no laws have been broken.

[northernladuk]

Yes. Though it was a few years ago and I've lost it.

What it does do is demonstrate the different taxation regimes that may apply dependant upon how the property is owned. It also covers some aspects of, for example, living in a property owned by a company you control. It shows the consequences of certain actions that may occur in the future (emigration is a potential biggie). It also details such things as the company potentially becoming an investment company and the potential CT exit charge should the company through circumstance become non UK resident.

If one is seriously considering owning property through a company I would suggest it's 25 quid well spent.

I appreciate what you say but am less convinced the more I think about it. These guys want to give you good news to get you excited to make you think the 25 quid was worth it. You would be well pissed if you paid your money and it proved it wasn't a good idea wouldn't you.

It is this type of bias that would steer me away from paying for this type of thing. Session with my accountant would be much more satisfying I think.

[ASB]

Have you bought this book? It looks like one of those 'How I made a million using Google' rip offs.

Yes. Though it was a few years ago and I've lost it.

What it does do is demonstrate the different taxation regimes that may apply dependant upon how the property is owned. It also covers some aspects of, for example, living in a property owned by a company you control. It shows the consequences of certain actions that may occur in the future (emigration is a potential biggie). It also details such things as the company potentially becoming an investment company and the potential CT exit charge should the company through circumstance become non UK resident.

If one is seriously considering owning property through a company I would suggest it's 25 quid well spent.