BTL: Company vs. personally held

[fergus]

Apologies if this has been asked before.

With the forthcoming changes to taxation on BTL income, can anyone either briefly summarise the pros/cons of holding a property in a company versus holding it personally, including tax highlights and any other gotchas to watch out for (inheritance, selling the property, etc). If there is anything out there on the web, a link would be great.

I am planning on speaking to an accountant but would prefer to be partially educated to maximise the benefit.

[13m]

fergus said:

Apologies if this has been asked before.

With the forthcoming changes to taxation on BTL income, can anyone either briefly summarise the pros/cons of holding a property in a company versus holding it personally, including tax highlights and any other gotchas to watch out for (inheritance, selling the property, etc). If there is anything out there on the web, a link would be great.

I am planning on speaking to an accountant but would prefer to be partially educated to maximise the benefit.

In a company you'll pay corporation tax, rather than personal tax.

It would appear you'll escape the new tax rules.

Your profit will be in the company, so you'll need to extract it. This will mean paying some tax, probably.

You'll be less attractive to lenders. Those that will entertain you will probably want you to provide personal guarantees.

You'll have the compliance costs of running a company.

You may go to all the trouble of doing this and then find that either:

a. George Osborne changes his mind and doesn't do it. Or

b. George Osborne doesn't change his mind and starts to interfere with taxation on resi property held in companies.

[Eric Mc]

Or makes the extraction of the money from the company through dividends etc not so tax efficient.

Oh wait, he's already done that.

All bases covered by the Chancellor.

[JQ]

You'd be best placed to speak to a finance broker before an accountant. As it's quite unlikely a company will get a BTL mortgage and you might be in for a shock when you see the fees, costs and rates applied to commercial property loans.

[Sarnie]

BTL rates and fees with lenders who accept applications from Ltd companies will be higher than prime high street rates....

[siheb]

For reference we currently have a couple of Ltd Co resi btl mortgages (25 yr interest only), rate is BBR + 3.49% over the term. Initial fee was 1% of loan.

So definitely more expensive than personal btl loans.

[fergus]

Thanks for the replies.

It looks like the only realistic option is to move the BTLs to the missus in terms of shifting the beneficial ownership. Her marginal tax rate is 3 bands below mine.

Are there any other easy wins in terms of legally minimising the taxable amount, especially now the 10% W&T allowance is going in full for 2015-16?

[Eric Mc]

10% W & T only related to "Furnished Lettings".

If it is a furnished let, you will be able to claim for the actual cost of replacing furnishings and fittings.

[tescorank]

If you go from residential to ltd co. Chances are you will be liable for tax on the capital gain and errr stamp duty as well .

Original poster, your not this Fergus??

http://www.telegraph.co.uk/finance/personalfinance...

Edited by tescorank on Tuesday 15th September 14:37

[trowelhead]

tescorank said:

Original poster, your not this Fergus??

http://www.telegraph.co.uk/finance/personalfinance...

Edited by tescorank on Tuesday 15th September 14:37

[fergus]

tescorank said:

If you go from residential to ltd co. Chances are you will be liable for tax on the capital gain and errr stamp duty as well .

Original poster, your not this Fergus??

http://www.telegraph.co.uk/finance/personalfinance...

Edited by tescorank on Tuesday 15th September 14:37

lol. I wish! I would hope if I had £250mm in a BTL portfolio, I'd have the tax angle tied down slightly tighter, and wouldn't use a car forum for initial advice!!

[sumo69]

The change in effective tax rates due to this change is mind boggling - I have seen a real life example where the current tax rate against economic profit is 5.5% and by 2020 is 143.3%.

In other words, eating into capital to stand still and that assumes no increases in mortgage rates!

Those who have a buy-to-lets really need to be reviewing their position to decide what action to take before its too late.

I am currently preparing some marketing material regarding this - its much more of an issue than the changes individend taxation!

David

[fergus]

sumo69 said:

The change in effective tax rates due to this change is mind boggling - I have seen a real life example where the current tax rate against economic profit is 5.5% and by 2020 is 143.3%.

In other words, eating into capital to stand still and that assumes no increases in mortgage rates!

Those who have a buy-to-lets really need to be reviewing their position to decide what action to take before its too late.

I am currently preparing some marketing material regarding this - its much more of an issue than the changes individend taxation!

David

Agree with your points.

Given the instability this may inadvertently have to the lettings market and the knock on effect on the stability of the tenant's housing situation, do you believe the changes to the related BTL taxation will be revised prior to going live?!

[sumo69]

fergus said:

Agree with your points.

Given the instability this may inadvertently have to the lettings market and the knock on effect on the stability of the tenant's housing situation, do you believe the changes to the related BTL taxation will be revised prior to going live?!

I think it may depend on whether this forces some landlords to sell, hence freeing up some demand or whether landlords try and force more rent out of tenants to make up the shortfall in post-tax returns.

If the latter, I believe there may be regulations introduced to limit rents when compared to earlier levels and market rates for the area.

I cannot see these provisions being reversed, as they were as much a social political move as tax raising.

David

[MrChips]

I've written a little spreadsheet to calculate the difference in income pre and post changes but could do with someone sense checking it... Any takers?

It's not overly complex but I've seen several different worked examples online so wanted to try my own.
If we can get the house into my wife's name before the changes then I think it only impacts us a few hundred pounds a year as she will still be within her lower tax bracket so I guess these changes do hit either higher rate payers and more so professional landlords.

[sumo69]

MrChips said:

I've written a little spreadsheet to calculate the difference in income pre and post changes but could do with someone sense checking it... Any takers?

It's not overly complex but I've seen several different worked examples online so wanted to try my own.
If we can get the house into my wife's name before the changes then I think it only impacts us a few hundred pounds a year as she will still be within her lower tax bracket so I guess these changes do hit either higher rate payers and more so professional landlords.

I will do it - PM me and i will give you my e-mail address.

David

[MrChips]

PM sent David, many thanks!

[sumo69]

MrChips said:

PM sent David, many thanks!

Not had your spreadsheet yet???

[MrChips]

Hey, maybe the PH mail system is on a go-slow again. I've sent another pm just now so hopefully that will come through with my email address on it. If you get it and reply then I can send over the sheet.
Cheers again

[sumo69]

Mr Chips

I am getting the PM's.

I think the issue is your hotmail address spamming my replies!!

I will PM you so we can get this done.

David