Reply to: BTL business. Starting capital.

[anim]

So many questions, so little time.

ER is by far the best legally acceptable tax efficient manner in which you can get funds to you personally. So, assuming you have significant retained profits in the IT company when you quit the business, you liquidate, pay ER and have the funds in your personal account. You then loan the same funds into the SPV to buy property. SPV then owes you money that will take years to pay back.

So what's happened here? You've created an income stream that will be income-tax free for years/decades. You've already paid tax on it - CGT with ER.

If ER wasn't available, then yes you would just rebrand the company and use the funds in there to purchase income generating assets. But then any extraction of funds will cost you the usual dividend/salary tax.

I'm happy to help but I'm strapped for time. I'll hold a seminar if you guys have enough numbers to drum up a suitable fee for my time.

Depending on the fee amount I might be up for it. Please suggest.

Why new company? One of the main reasons for most of us is going in-IR35/umbrella for the same client. In the current climate very few here will turn down offer to go inIR35 for the same client for, say, £6000/m in your pocket.

You dont want to risk HMRC investigation of your SPV-turned IT LTD.

[GitMaster69]

Thanks for that. I might ping you for the acctnt details.

I have been looking at many different options - LTD or personal (including life rents), hybrid. While I am still crystallizing ideas and approaches I wanted to see what the clever folk are doing.
So any more details on how you did it are appreciated. If you dont like to post here, PM would work.

Generally for the property I own, I will not pay CGT because it is < 12300 increase in the price. Only SDLT by the LTD.

One question: do you need SPV or LTD will do? Is is in relation of BTL mortgage?

I think you need 1 SPV per property which is quite stupid

[anim]

I've done all of this and more. But more importantly I have researched a lot into the mechanics, and learned that there is much not worth doing.

I have a good IT and property accountant who can help you with this. PM me if you want his details.

It would take me too long to tell you what to do and of course I don't know your specific situation, but briefly you could:-

1. Close your IT company and claim ER - assuming you don't need it any more. You then have personal funds available to invest.
2. Set up a SPV and loan the personal funds into it.
3. Transfer your property into the SPV, using the loaned funds to buy. This will be a sale/purchase transaction and you will pay CGT (if applicable & payable within 30 days) and SDLT.
4. If you need a mortgage then apply ASAP. Be prepared for a long wait and a lot of hassle from the limited numbers of Ltd Co mortgage lenders, and be prepared for interest rates that are double those of personal BTL mortgages and the extortionate fees for them.
5. So now you have the properties in the SPV and all rental income goes into the SPV. The first thing you can do is extract all funds that you loaned into the company - of course this is tax free because you already paid ER CGT on it. This extraction could take several years.
6. After all loaned funds have been extracted, all further rental income remains in the SPV and can be taken out or re-invested, after CT is paid.

This is just one example of what you can do. I do agree with the other posters here that you need to get a real grip on this though.

Did I do the above? No. But I know exactly how to do it and more importantly I know exactly why I didn't do it. It was easier to swallow S24 tax in the end, and give up the notion of ever working in a 'job' ever - so the real loser is the government because they taxed my job/business out of existence.

Thanks for that. I might ping you for the acctnt details.

I have been looking at many different options - LTD or personal (including life rents), hybrid. While I am still crystallizing ideas and approaches I wanted to see what the clever folk are doing.
So any more details on how you did it are appreciated. If you dont like to post here, PM would work.

Generally for the property I own, I will not pay CGT because it is < 12300 increase in the price. Only SDLT by the LTD.

Here is one for you: If a property is bought for 100k and now market value is 115k. Can you sell BMV say at 12.3k?

One question: do you need SPV or LTD will do? Is is in relation of BTL mortgage?

[GitMaster69]

I wouldn't do AirBnB myself, due to the workload involved and of course you need to have different, more expensive financing in place. But it can be very profitable. Best to automate it as far as possible.

It's grey area at best, as far as I know theres no products tailored towards airbnb. Prove me wrong i'd look at that.

[LondonPM1]

I wouldn't do AirBnB myself, due to the workload involved and of course you need to have different, more expensive financing in place. But it can be very profitable. Best to automate it as far as possible.

If its the studio flats in kings cross that can be pfroitable then ok - I highly doubt a four bed semi in Hendon or balham will be anywhere near profitable

[ChimpMaster]

yeah I had nutters twice over 9 months period, a party of 100 people, neighbours complain HARD, 8 police cars etc. It's stressful but profitable. So if you want perm vacations in Cayman better have someone manage it locally and shield you from tulip

I wouldn't do AirBnB myself, due to the workload involved and of course you need to have different, more expensive financing in place. But it can be very profitable. Best to automate it as far as possible.

[GitMaster69]

This is a mental answer

No one does yield on deposits - Come on

Yields are measured as cost vs income

Im interested in your airbnb - is that really working out - dont you get a bunch of nutters rocking up

yeah I had nutters twice over 9 months period, a party of 100 people, neighbours complain HARD, 8 police cars, fights on the street, mob jumping on cars etc. I've implemented precautions since then to not to be a target again. It's stressful but profitable. So if you want perm vacations in Cayman better have someone manage it locally and shield you from tulip. Ideally multiple so it's cost effective to hire a "guest experience manager"
as for the yields , just divide them by 4 if you want vs property value.

[LondonPM1]

depending if you want to know the yield from deposit or value of the property, the latter being rather useless as you are not putting 100% down only 25%.

so based on 25% deposit the yields calculation are :
prop 1: 25% yield net at deposit of 40k (normal let)
prop 2 ~40% yield net at deposit of 40k (airbnb) - 2 months out during pandemic, and pandemic year in general

This is a mental answer

No one does yield on deposits - Come on

Yields are measured as cost vs income

Im interested in your airbnb - is that really working out - dont you get a bunch of nutters rocking up

[hugebrain]

asset which the Government has taxed highly and could potentially focus on again.

I did a quick check and the net tax on buy to let is less than zero. The handouts and tax breaks given to landlords are greater than the total tax on the rents. This is unlikely to change since vast numbers of MPs rent out property (often to other MPs for their second homes, so again the tax payers pay).

Compare the total of corporation tax, vat, national insurance, dividend tax and income tax that productive people pay to the taxes on the idle rich. The tax on working is double the tax on idleness - and that’s before the 20 odd billion a year the landlords get in benefits.

“Taxed highly”, Eek!

[GitMaster69]

You can easily say something like value 600K income is 24K which gives a 3% yield

Or value is 260 and income is 20K which gives yield at 7%

Just get ready for cgt which is not inflation adjusted - There is no way around that

depending if you want to know the yield from deposit or value of the property, the latter being rather useless as you are not putting 100% down only 25%.

so based on 25% deposit the yields calculation are :
prop 1: 25% yield net at deposit of 40k (normal let)
prop 2 ~40% yield net at deposit of 40k (airbnb) - 2 months out during pandemic, and pandemic year in general so expecting that to go up next year and years on cause of inflation and helicopter money

[LondonPM1]

Both income and capital growth. I'll keep to myself the details
I was lucky enough to buy one flat in middle of nowhere (close to the center though) only to be surrounded by 3x more expensive high rises which inflated it's value 3 years later. The other steadily grows 8% a year yielding around 50% of deposit net yearly after repayment mortgage. If I transferred both into interest only I could retire now having 2-3k income monthly. I want to retire by 40 so 3 more years to accumulate as much as possible.

Now that I have proven model I want to expand on that and accelerate buying (which is not easy as supply is also tulipe)

You can easily say something like value 600K income is 24K which gives a 3% yield

Or value is 260 and income is 20K which gives yield at 7%

Just get ready for cgt which is not inflation adjusted - There is no way around that

[GitMaster69]

What does proftable mean ? Income yield numbers? Are they HMOs? Capital growth or income? Where in the UK

Both income and capital growth. I'll keep to myself the details
I was lucky enough to buy one flat in middle of nowhere (close to the center though) only to be surrounded by 3x more expensive high rises which inflated it's value 3 years later. The other steadily grows 8% a year yielding around 50% of deposit net yearly after repayment mortgage. If I transferred both into interest only I could retire now having 2-3k income monthly. I want to retire by 40 so 3 more years to accumulate as much as possible.

Now that I have proven model I want to expand on that and accelerate buying (which is not easy as supply is also tulipe)

[LondonPM1]

Yes, a good accountant who understands not only property but also how to fund the business through inter-company loans or director loans.

My most tax efficient wealth growth approach? Not sure I know how to answer that. I'm not chasing wealth any more: the time for that has gone for me personally, and what with the economy and global situation being what it is. I have chosen to retire from IT and from any 'job' even though I am 20 years away from official retirement. The S24 tax hit has made PAYE work ineffective and senseless. I have crunched numbers to the nth degree it's better for me and the Mrs to stop working and just run the BTLs. Better in terms of quality of life: we won't make a huge amount of £ but we will live a decent life with time for the family.

So you are 45 or 47? Not bad

I see where you are coming from - Its partly why i posted the thread on what 100K income does to you take home pay

I ve come to realise I am in the same boat - I cannot get a PAYE job in the uk again

[LondonPM1]

I probably could be there now, I've only 2 but highly profitable, planning to expand to further 2-3 in 2021, contracting market permitting

What does proftable mean ? Income yield numbers? Are they HMOs? Capital growth or income? Where in the UK

[GitMaster69]

Yes, a good accountant who understands not only property but also how to fund the business through inter-company loans or director loans.

My most tax efficient wealth growth approach? Not sure I know how to answer that. I'm not chasing wealth any more: the time for that has gone for me personally, and what with the economy and global situation being what it is. I have chosen to retire from IT and from any 'job' even though I am 20 years away from official retirement. The S24 tax hit has made PAYE work ineffective and senseless. I have crunched numbers to the nth degree it's better for me and the Mrs to stop working and just run the BTLs. Better in terms of quality of life: we won't make a huge amount of £ but we will live a decent life with time for the family.

I probably could be there now, I've only 2 but highly profitable, planning to expand to further 2-3 in 2021, contracting market permitting