Is BTL still possible?
Discussion
A couple of years ago I had a long session with the accountant to discuss this limited company thing, although I've used limited company ownership for a portfolio for many years, alongside a sole name ownership portfolio and another limited company that micro-manages sole trader portfolio interests.
The short version is that there are pros and cons to both forms of ownership, but detailed modelling elicited very little difference in outcomes between the two in my case - although everyone's circumstances are different.
Subsequently I decided to continue both as they were and decided against selling the sole trader portfolio to the limited company, although some very inventive alternative ideas were put forward as to how - apart from selling -the properties could be transferred from ST to Ltd Coy.
As Nick said above, it can be a very expensive manoeuvre to implement which can cost a load of income to recover, and these costs should not be forgotten when you do the maths.
The short version is that there are pros and cons to both forms of ownership, but detailed modelling elicited very little difference in outcomes between the two in my case - although everyone's circumstances are different.
Subsequently I decided to continue both as they were and decided against selling the sole trader portfolio to the limited company, although some very inventive alternative ideas were put forward as to how - apart from selling -the properties could be transferred from ST to Ltd Coy.
As Nick said above, it can be a very expensive manoeuvre to implement which can cost a load of income to recover, and these costs should not be forgotten when you do the maths.
Edited by Groat on Wednesday 1st September 00:59
NickCQ said:
This sounded interesting so I looked it up. I think what you are referring to is the Ramsay vs HMRC case in 2013?
Ramsay won and got CGT roll-over relief on the transfer of properties held in a partnership into a limited company. She had to meet various tests to show that this was a business not an investment, including worked 20+ hours / week on the maintenance of the properties and having no other job. Unlike your description, Ramsay didn't get to step up the CGT basis - she deferred the tax but the basis stayed at the original purchase cost, so no "freebie".
https://assets.publishing.service.gov.uk/media/576...
Interesting - unfortunately I don't know the case law which was relied upon - some of the circumstances were also a little different in my mum's case vs the one you have quoted, but I do recall one of the rules was that you needed to be working substantially on the BTL business (which she does). Ramsay won and got CGT roll-over relief on the transfer of properties held in a partnership into a limited company. She had to meet various tests to show that this was a business not an investment, including worked 20+ hours / week on the maintenance of the properties and having no other job. Unlike your description, Ramsay didn't get to step up the CGT basis - she deferred the tax but the basis stayed at the original purchase cost, so no "freebie".
https://assets.publishing.service.gov.uk/media/576...
I believe there are (or at least were) a few specialists working in this area so hopefully this will allow someone to investigate it further if they think it could help them. Although now the tapering on mortgage relief has stopped, I suspect anyone who was going to transfer will already have done so.
NickCQ said:
Mr Whippy said:
How do you go about moving an owned-outright property, into a more efficient limited company structure for letting?
Isn't the problem that for any higher value property the SDLT (base plus 3% surcharge) is so high in comparison to the net rental yield that you'll give up many years of income to do this?Presumably it also causes problems if you subsequently want to revert to using that property as a main / holiday residence yourself.
From 1st Oct:
0% Up to £125,000
2% The next £125,000 (the portion from £125,001 to £250,000)
5% The next £675,000 (the portion from £250,001 to £925,000)
10% The next £575,000 (the portion from £925,001 to £1.5 million)
12% The remaining amount (the portion above £1.5 million)
If you add the 3% surcharge for Ltd and assume a 5% rental return, as crude approximation, <£250k tends to be about a year’s rental for purchase costs (legals and sdlt). It’s when you get past £500k that you’re into 12m+ but would need to be into some very serious figures for it to take many years to cover sdlt.
That isn’t to say that there aren’t other costs (which could impact your overall profitability timelines) but it does limit the appeal if you only anticipate holding for a relatively short period of time.
With higher entry costs it also explains, in part, why the market gets pretty thin for renters looking for larger properties.
dmahon said:
I have my properties in a LTD company which was funded with a directors loan. This means I would pay 20% corporation tax on income and then pay the directors loan to me over the next 10 years for a net tax figure of 20% worst case.
Why are you paying 20% when CT is 19%?Edited by dmahon on Tuesday 31st August 10:23
DonkeyApple said:
Someone mentioned that socialism is the likely largest threat facing resi property investment but that's rather obviously 100% off the mark. Given the enormous debt pile taken on by the country over the last 18 months, the absence of efficient tax collection on property, the ease at which property can be taxed then the single largest risk to all property owners at present, is capitalism.
The UK has to raise taxation. They'll attempt to delay it as long as possible but there will be tax increases and property ownership is a very likely target, especially landlords as that side is a huge vote winner. Plus, with up to £2bn a year being evaded by landlords there is a moral obligation to bring an end to turning a blind eye to that fraud.
Landlords deliver a vital service to the economy but the ones who subsequently defraud it do need to be found and hounded. It's not exactly difficult to cross reference the various databases to find the people overtly taking the piss and then ask them to supply evidence that they aren't criminals who owe the taxpayer a chunk of cash.
Well from my perspective LLs just pass costs (like higher taxes) on to renters in monthlies, and the market is bearing that right now.The UK has to raise taxation. They'll attempt to delay it as long as possible but there will be tax increases and property ownership is a very likely target, especially landlords as that side is a huge vote winner. Plus, with up to £2bn a year being evaded by landlords there is a moral obligation to bring an end to turning a blind eye to that fraud.
Landlords deliver a vital service to the economy but the ones who subsequently defraud it do need to be found and hounded. It's not exactly difficult to cross reference the various databases to find the people overtly taking the piss and then ask them to supply evidence that they aren't criminals who owe the taxpayer a chunk of cash.
So it’s a risk to renters, not LLs.
The risk to LLs would be property prices dropping. But we know government don’t like that one.
So the biggest risk is socialism... again. Imo.
It’s the same with big farms being tax havens for the wealthy.
They’re also arguably strategic assets. Having people excessively profit from having a roof over your head and being able to eat does sound a ‘bad thing’ on the face of it... imagine Corbyn mixed with an economic crisis and I can see this kind of thing taking place.
Condi said:
Mr Whippy said:
How do you go about moving an owned-outright property, into a more efficient limited company structure for letting?
Can you really put more costs against income that you can’t in self-assessment?
Is this all driven by dividend income at a superior tax rate to normal income tax rates?
I think I briefly saw someone talking about the business repaying a loan, and that’s a cost to the business?
Is that because the business gets in debt to the director when the house is transferred across?
This for years and years the business is just repaying a loan?
How does the tax work out when liquidating? Sell house, get cash. Repay debts.
CGT? Then cash lump to shareholders?
Yes to a lot of that really. Can you really put more costs against income that you can’t in self-assessment?
Is this all driven by dividend income at a superior tax rate to normal income tax rates?
I think I briefly saw someone talking about the business repaying a loan, and that’s a cost to the business?
Is that because the business gets in debt to the director when the house is transferred across?
This for years and years the business is just repaying a loan?
How does the tax work out when liquidating? Sell house, get cash. Repay debts.
CGT? Then cash lump to shareholders?
You (the company director) can lend the business money to get going (say £100k), and then this can be paid back tax free - as you're just getting your own money back out again, basically.
Any profits can then be taken as dividends (lower tax), paid into a private pension, or kept within the company and then paid out later. For example wait until retirement and withdraw profits then, when you are more likely to be a lower rate taxpayer. The company however will pay tax on it's profits year by year.
The company has no tax free allowance of CGT and so will pay tax on any uplift in value of the property.
You can put all the costs of the business (full mortgage interest cost) against profits, whereas for an individual you can't any more.
I will defer to others regarding "moving a property into a business", but believe it requires you (the individual) to sell the house to the business as they are legally separate entities. It has to be at market value and the correct taxes will need to be paid (eg. additional stamp duty). Although Groat may know more about that.
98elise said:
Corporation Tax + Dividend tax isn't that much different to normal Income Tax unless I'm missing something. I was running a one man band Ltd company until recently and overall it was a couple of %
Depends when/where/with whom the money lands… you can control all of these much more through Ltd. LooneyTunes said:
If you add the 3% surcharge for Ltd and assume a 5% rental return, as crude approximation, <£250k tends to be about a year’s rental for purchase costs (legals and sdlt). It’s when you get past £500k that you’re into 12m+ but would need to be into some very serious figures for it to take many years to cover sdlt.
The issue is that the rental yield tends to go down as the property gets larger. Agree that in the £200k band it's not so much of a problem, but going back to the prior scenario of a c. £1 mm vacant ex family home that might yield <3% net after tax, you can see how it doesn't make sense.NickCQ said:
The issue is that the rental yield tends to go down as the property gets larger. Agree that in the £200k band it's not so much of a problem, but going back to the prior scenario of a c. £1 mm vacant ex family home that might yield <3% net after tax, you can see how it doesn't make sense.
This was the intention of the rule changes, I suppose, making it only marginally economical for people like me to keep them as buy to let in the hope that we’d sell them on.In my case the changes have just removed a property from the market.
The stamp duty rules have also stopped me from being willing to sell and then buy again if I want to, it’s just too expensive, so the second home sits empty for 75% of the time.
The clock’s just run out out on reclaiming the additional stamp duty I paid for not selling my flat when moving to the current main home. Between the supplement and the high initial rate it was a six-figure bill for moving between two equal value places.
NickCQ said:
Did you ever investigate short term letting for your place? Don't know the area well but I wonder whether you could set it up as some sort of "posh weekend away in toon" type of thing?
I didn’t, but think it’d have been too much hassle. I was still working as a trader when I bought it, so had a very stressful work life and didn’t want to have to come home and deal with anything else.It was probably a bit of a mistake to buy when I did; I’d assumed that we’d want to spend plenty of time there ourselves when we wanted to get out of London, but since we bought it we’ve had two children, I started working in Amsterdam, and then COVID stopped us travelling.
It’s been far from a disaster, the rent covered the dilapidations, and it didn’t sit empty through any Newcastle winters, but it’d not have been a good buy for anyone wanting to actually make a decent yield.
After re-equipping it with the contents of my Dutch home and spending last week there I’m happy now to try to split my time between there and London.
Mr Whippy said:
Well from my perspective LLs just pass costs (like higher taxes) on to renters in monthlies, and the market is bearing that right now.
So it’s a risk to renters, not LLs.
The risk to LLs would be property prices dropping. But we know government don’t like that one.
So the biggest risk is socialism... again. Imo.
It’s the same with big farms being tax havens for the wealthy.
They’re also arguably strategic assets. Having people excessively profit from having a roof over your head and being able to eat does sound a ‘bad thing’ on the face of it... imagine Corbyn mixed with an economic crisis and I can see this kind of thing taking place.
It's a possibility whereas tax increases in the short to medium term are a probability. A conversion to socialism would require a seismic revolution and you can't really hedge against those So it’s a risk to renters, not LLs.
The risk to LLs would be property prices dropping. But we know government don’t like that one.
So the biggest risk is socialism... again. Imo.
It’s the same with big farms being tax havens for the wealthy.
They’re also arguably strategic assets. Having people excessively profit from having a roof over your head and being able to eat does sound a ‘bad thing’ on the face of it... imagine Corbyn mixed with an economic crisis and I can see this kind of thing taking place.
. It's a punter's random coin toss. The long odds favoured by specialists. Conversely, tax increases and targeting of property (don't forget that capitalist land taxes are usually sold to the masses as socialist panaceas) are short odds.
Let's say the reports are roughly right that landlords are defrauding the taxpayer out of £2bn per year. That's money the Govt desperately needs and what are the political downsides to collecting it going forward or even going after arrears?
There's practically only upside. The electorate doesn't like landlords and thinks they are all on the fiddle. They will lap up a witch hunt. It's throwing scraps to the mob, a peace keeping hanging. Professional and legitimate landlords are safe as they can supply all the evidence of their honesty in electronic format at the drop of a hat. The 60-70% who are believed to be defrauding the taxpayer will struggle and most will prefer to come to terms with their aggressor rather than pay to calculate what they actually owe. Many 'investments' may transpire to only be profitable for that 60-70% of landlords because of their tax evasion so we could see a nice supply of smaller properties hitting the market.
And then there is general taxation and key inflation. Absolutely right that landlords pass on increased costs just the same as all businesses but just like all businesses there is no mystical, never ending pot of gold in the hands of the consumer. Ultimately, rent inflation is governed by wage inflation with the bottom end being pegged by the State and the top via the synthetic wage inflation of consumer debt.
The big question regarding rent inflation is how much is being driven in 2021 by a COVID induced inefficient market combining with furlough cash synthesising a temporary ability to bid up the market? Followed by what is going to happen to wage inflation over the following 24 months as businesses settle down into their post COVID employment settings. But on top of that, renters are very likely to have additional cost pressures on their wages if consumer taxation rises. Tax increases on fuels, sin products and just VAT in general or even a tax on online shopping etc will all get passed on to the renter who has to fund all of those new costs while possibly continuing to incur the long term trend of negative wage inflation at their end of the market.
These are the issues facing us landlords going forward and I fully expect an increase in legislation and an increase in taxes that will hit gross profits but more importantly, I fully expect an increase in default risk and the risk of catastrophic, negative yield and erosion of capital value.
As a landlord the other worry I have is the monumental cultural shift among British society into gambling with the belief that it is somehow investing. The desire among renters to speculate on unregulated, rigged markets is quite unfathomable to me as is its endemic spread from what would once have been a blue collar preserve into the white collar market. It wouldn't surprise me if one of the most common causes of white collar rental default among the under 40s, other than a far more transient job market, turned out to be 'investment' failure ie gambling addiction.
We tend to think of gambling addiction as a footballer suddenly free of the shackles of employment and binning their pension pot via illegal bookies or of the poor chap who staggerà from the offy to the bookies. Always a blue collar illness not something the white collar folk get involved in but that just isn't the case these days. The propensity for white collars to go gambling is monumental. The key has been to rebrand gambling so that it has a new name and feel that allows the punter to believe what they are doing is sophisticated and requires intellect. Rather than talking about their bets that have come in at the bar while topping up on beer they're instead sitting around the dining table, drinking wine and talking about the bets that have won using longer and new words all while nursing the typical chunky gambling losses that have demolished the house deposit yet again but can still be blamed on rising house prices and the prolific consumer spending and reckless gambling of the masses while they are surrounded by all their newly purchased goods and writing off another batch of peer to peer losses and crypto collapses.
If the economy collapses to the point that we start requisitioning private property assets then we are new of any business case but it is the arrogance of man to believe they will be the chosen ones to witness the apocalypse. And that's only furthered by old age and the secret desire to watch it all end for everyone rather than watch another episode of an antique show while sitting in their own cold urine.
By far the closest and biggest risk to us landlords is not some seismic arrival of the four horsemen but the continued trend of increased legislation, increased taxation and the potential inability of being able to swiftly and easily push those costs onto the customer
And if 60-70% of landlords are indeed evading £2bn/year in tax then that side of the market is arguably at the highest risk ever as their model only works due to operating illegally and the clampdown was always going to happen but Covid makes it seem inevitable that that date has been brought forward considerably?
The only electable socialists in England are Blair type socialists so English landlords have zero to fear from loony socialism mainly because your electable socialists are all trough-snouters anyway (which includes substantial property holdings and other related activities).
Scotland on the other hand is quite different. Very different. I'll escape it (because I'll be dead) but I'd GUESS that unless Westminster cleans up its act pdq then within 10-15 years Scotland will be independent from rUK.
And then, my friends, you are going to be deluged with an incoming flood of wealthy high ability Scots fleeing their sequestration and asset grab via the SNP/Veg Party's National Socialist Economic Reform Policy implementation.
They are BURSTING to implement UBI. Just BURSTING to do it. But of course there is no money to pay for it. In fact there's no money to pay the monster of a benefits Bill Scotland currently runs up or 1000 other things.
No problem! A swingeing Wealth Tax coupled with a punitive Land Value Tax should do it!!!
Now you may laugh, O English Ruperts, but think on this:
A couple of hundred thousand of the wealthiest and most able Scots - all on the make and take - suddenly arrive on your patch!!!
HAHAHAHAHAHAHAHAHAHAHA!!!!
https://www.youtube.com/watch?v=2PtQKVsHB70
Scotland on the other hand is quite different. Very different. I'll escape it (because I'll be dead) but I'd GUESS that unless Westminster cleans up its act pdq then within 10-15 years Scotland will be independent from rUK.
And then, my friends, you are going to be deluged with an incoming flood of wealthy high ability Scots fleeing their sequestration and asset grab via the SNP/Veg Party's National Socialist Economic Reform Policy implementation.
They are BURSTING to implement UBI. Just BURSTING to do it. But of course there is no money to pay for it. In fact there's no money to pay the monster of a benefits Bill Scotland currently runs up or 1000 other things.
No problem! A swingeing Wealth Tax coupled with a punitive Land Value Tax should do it!!!
Now you may laugh, O English Ruperts, but think on this:
A couple of hundred thousand of the wealthiest and most able Scots - all on the make and take - suddenly arrive on your patch!!!
HAHAHAHAHAHAHAHAHAHAHA!!!!
https://www.youtube.com/watch?v=2PtQKVsHB70
Edited by Groat on Wednesday 1st September 11:35
Groat said:
Now you may laugh, O English Ruperts, but think on this:
A couple of hundred thousand of the wealthiest and most able Scots - all on the make and take - suddenly arrive on your patch!
Bring it on. These things are not zero sum. The more keen + able people we have, the better, in my book.A couple of hundred thousand of the wealthiest and most able Scots - all on the make and take - suddenly arrive on your patch!
Hopefully they'll want to buy some property in the capital...
Groat said:
A couple of hundred thousand of the wealthiest and most able Scots - all on the make and take - suddenly arrive on your patch!!!
HAHAHAHAHAHAHAHAHAHAHA!!!!
A great many of the best educated Scots are already living in England, and the arrival of more will be welcomed.HAHAHAHAHAHAHAHAHAHAHA!!!!
There’ll need to be a bit of work to be done to help them cope with competing against those from the UK’s better universities, but the Scots’ fine history in science and engineering suggests they’ll tend to be real assets.
NickCQ said:
Bring it on. These things are not zero sum. The more keen + able people we have, the better, in my book.
Hopefully they'll want to buy some property in the capital...
Most of the best Scots are already outside of Scotland. And when Scotland does leave the Union it will need a currency and a funding supplier so will become a vassal to the EU like Greece and the other smaller, slower European economies. They'll be under the oppressive German yoke but the overseas property assets will be relatively safe while there are local bank accounts to bail in. Hopefully they'll want to buy some property in the capital...
NickCQ said:
Bring it on. These things are not zero sum. The more keen + able people we have, the better, in my book.
Hopefully they'll want to buy some property in the capital...
"Hey guys! This one's inviting us into his empty........in yeez cum - aye the whole division, troops. Pile in"!!!!Hopefully they'll want to buy some property in the capital...
followed 15 minutes later by 
If Scotland needs some banks after independence there could be some skilled people moving the other way. They’ve only BoS now, which is hardly able to assist with setting up a whole new economy based around either a peg to a foreign currency or a completely new currency of their own.
I could quite fancy spending some of the less cold months in Edinburgh, and property is going to be even cheaper there than it is now.
I could quite fancy spending some of the less cold months in Edinburgh, and property is going to be even cheaper there than it is now.
Back to topic
Another plus point for anyone thinking about switching ownership of a portfolio to a Ltd Co is to remember that what's called Stamp Duty Surcharge (3%) in England and Additional Dwelling Supplement (4%) in Scotland doesn't apply if you're involving SIX or more properties in one transaction.
Another plus point for anyone thinking about switching ownership of a portfolio to a Ltd Co is to remember that what's called Stamp Duty Surcharge (3%) in England and Additional Dwelling Supplement (4%) in Scotland doesn't apply if you're involving SIX or more properties in one transaction.
Groat said:
Another plus point for anyone thinking about switching ownership of a portfolio to a Ltd Co is to remember that what's called Stamp Duty Surcharge (3%) in England and Additional Dwelling Supplement (4%) in Scotland doesn't apply if you're involving SIX or more properties in one transaction.
Doesn't it get treated as a commercial transaction though, so you pay 5% over £250k? Winds up roughly in the same place in England I would have thought. Maybe a bit cheaper in Sc without Nicola's vig.Gassing Station | Finance | Top of Page | What's New | My Stuff