BTL limited company set up

BTL limited company set up

Author
Discussion

s4tronic

Original Poster:

245 posts

125 months

Thursday 18th January 2018
quotequote all
hi all just want to validate my plan whether what I have come up with makes sense

I'm planning to set up new ltd company to invest in BTL properties (residential/commercial etc). This is long term for me, so I'm not looking to sell properties in near future nor I am looking to draw income from the company as I have my other ltd company which I use for contracting and that where I draw my salary/dividends from.

Plan is to set up company with myself and my wife being shareholders - £1 each starting capital (me being director, she would just hold shares) and then I would pay in, lets say £50k director loan so that company has funds to purchase property, pay stamp duty and all that.
Am I right in thinking that that £50k loan will continue to appear as liabilities and company will have to pay it back so whilst I do not look to draw salary/dividend, eventually when company has some spare profit, I could just pay it back in tranches to myself? I.e. £5k a year in couple of years time
My main worries are if
- I can pay it back in 5-20 years (initially company would have little profit with mortgage repayments covering most of rental income)
- when I do pay myself back the loan from the ltd company this does not account as my income for current tax year (since I have already paid tax on that money (its simply my existing savings). Would it still need to be declared on self assessment even if it doesn't account as income?

Just want to check in 10 -15 years it wouldn't be a problem for me to repay this money.

The reason I want to go limited is that we've got already 2 btl properties owned privately and I'm getting fed up with having to declare it on my self assessment (thus reducing income from my main business) when I don't actually see this money as the rent covers the mortgage repayments.

thanks for the advice.

mikeh501

708 posts

180 months

Thursday 18th January 2018
quotequote all
im interested in this also. few things going around my head are

  • capital gains charges + sale/purchase fees + stamp if you transfer a property from personal to corp.
  • what are ongoing audit charges going to look like each year?
  • dont know if you intend getting a mortgage on the properties but ive heard its a lot more difficult with a LTD company.

Jockman

17,912 posts

159 months

Thursday 18th January 2018
quotequote all
Why no Directorship for wife?

No you won't pay tax on the return of your capital.

Director Loans are usually kept in Current Liabilities even though you have no intention of redeeming them in the current period. Cocks up your liquidity ratio but hardly fatal.

anonymous-user

53 months

Thursday 18th January 2018
quotequote all
s4tronic said:
hi all just want to validate my plan whether what I have come up with makes sense

I'm planning to set up new ltd company to invest in BTL properties (residential/commercial etc). This is long term for me, so I'm not looking to sell properties in near future nor I am looking to draw income from the company as I have my other ltd company which I use for contracting and that where I draw my salary/dividends from.

Plan is to set up company with myself and my wife being shareholders - £1 each starting capital (me being director, she would just hold shares) and then I would pay in, lets say £50k director loan so that company has funds to purchase property, pay stamp duty and all that.
Am I right in thinking that that £50k loan will continue to appear as liabilities and company will have to pay it back so whilst I do not look to draw salary/dividend, eventually when company has some spare profit, I could just pay it back in tranches to myself? I.e. £5k a year in couple of years time
My main worries are if
- I can pay it back in 5-20 years (initially company would have little profit with mortgage repayments covering most of rental income)
- when I do pay myself back the loan from the ltd company this does not account as my income for current tax year (since I have already paid tax on that money (its simply my existing savings). Would it still need to be declared on self assessment even if it doesn't account as income?

Just want to check in 10 -15 years it wouldn't be a problem for me to repay this money.

The reason I want to go limited is that we've got already 2 btl properties owned privately and I'm getting fed up with having to declare it on my self assessment (thus reducing income from my main business) when I don't actually see this money as the rent covers the mortgage repayments.

thanks for the advice.
IANAA but any money you loan into the company won't be taxed again when it is repaid. If you charge the company interest you will pay tax on the interest.

That is the most basic interpretation and hopefully Eric will be along soon to elaborate (and, quite possibly, say that I am talking bks!).

mikeh501

708 posts

180 months

Thursday 18th January 2018
quotequote all
ive done directors loans before and thats exactly how it works. basically the same as if it was a savings account on your tax return.

Eric Mc

121,767 posts

264 months

Thursday 18th January 2018
quotequote all
All of the above is correct.

I would wonder why you only want to put £1 share capital into the business? It does seem to indicate a lack of commitment to the company and might be viewed with an element of scepticism by any potential lenders (if you plan for the company to borrow now or at a future date to acquire development or rental properties).

As you seem ready to put at least £50,000 of your own money into the company, maybe you might want to consider allocating a bit more than £1 to share capital.

Mahogany

382 posts

208 months

Thursday 18th January 2018
quotequote all
Eric Mc said:
All of the above is correct.

I would wonder why you only want to put £1 share capital into the business? It does seem to indicate a lack of commitment to the company and might be viewed with an element of scepticism by any potential lenders (if you plan for the company to borrow now or at a future date to acquire development or rental properties).

As you seem ready to put at least £50,000 of your own money into the company, maybe you might want to consider allocating a bit more than £1 to share capital.
Does it actually make a difference what price you set your shares at in this scenario?

CaptainSlow

13,179 posts

211 months

Thursday 18th January 2018
quotequote all
Mahogany said:
Eric Mc said:
All of the above is correct.

I would wonder why you only want to put £1 share capital into the business? It does seem to indicate a lack of commitment to the company and might be viewed with an element of scepticism by any potential lenders (if you plan for the company to borrow now or at a future date to acquire development or rental properties).

As you seem ready to put at least £50,000 of your own money into the company, maybe you might want to consider allocating a bit more than £1 to share capital.
Does it actually make a difference what price you set your shares at in this scenario?
For a potential lender technically yes, in reality unlikely as you'd more than likely be personally guaranteeing the loan.



Eric Mc

121,767 posts

264 months

Thursday 18th January 2018
quotequote all
I still think £1 is a bit mingy.

TallPaul

1,517 posts

257 months

Saturday 20th January 2018
quotequote all
How easy is it for a BTL LTD Co to get mortgages, even with a 50K deposit (location dependant)

CaptainSlow

13,179 posts

211 months

Saturday 20th January 2018
quotequote all
TallPaul said:
How easy is it for a BTL LTD Co to get mortgages, even with a 50K deposit (location dependant)
Very easy if the loan is for £25k....

mikeh501

708 posts

180 months

Saturday 20th January 2018
quotequote all
my broker told me recently that because there are less lenders who will lend to a LTD company the rates arent anywhere near as competiitive.

Mortgage_tom

1,294 posts

225 months

Saturday 20th January 2018
quotequote all

The difference in rates, sole trader vs ltd, really depend on what your buying.


mikeh501

708 posts

180 months

Saturday 20th January 2018
quotequote all
do you have some more info? have you done it?

Mortgage_tom

1,294 posts

225 months

Saturday 20th January 2018
quotequote all
mikeh501 said:
do you have some more info? have you done it?
Yes, I have.

For example with larger HMO/multi-unit the rate was the same whether LTD or not.

However even if the rate is higher, you could be better off depending on your personal status, e.g. higher rate tax payer.

Feel free to give me a call. :-)




Jockman

17,912 posts

159 months

Saturday 20th January 2018
quotequote all
Eric Mc said:
I still think £1 is a bit mingy.
Agreed. I wouldn't go under 100 shares.

A lot more flexible, especially if wishing to utlise the wife's full potential in the future.

All for love, of course.

Eric Mc

121,767 posts

264 months

Saturday 20th January 2018
quotequote all
Absolutely. Of course, share capital can always be increased later, but most companies I've had as clients started of with a minimum of 100 issued shares.

sleepezy

1,779 posts

233 months

Sunday 21st January 2018
quotequote all
Above is pretty much spot on - be aware that a lender may have a restrictive covenant such that you cannot pay back your Directors loan until their charge is cleared.

Alpinestars

13,954 posts

243 months

Sunday 21st January 2018
quotequote all
Agree with what's been said. An additional benefit of the ltd co route is no restriction on interest relied on borrowings.

So

26,271 posts

221 months

Sunday 21st January 2018
quotequote all

Can I just point out this:

The government has shafted a great many experienced landlords with their tax changes. The target was the small time and highly geared amateur, but a lot of genuine and good landlords have been impacted.

The exclusion of companies from the tax changes has meant that many inexperienced BTL investors are setting up as companies. So, some complete amateurs are set to do better than proper landlords.

Expect to see the government attacking BTL companies in due course.