Buy to Let- Ltd Company v Personal Investment - pros & cons
Discussion
Hi guys,
I am thinking of buying a residential property to rent but unsure what is the most tax efficient way for me to do this. I have the funds in one of my companies to buy the property outright however if I was to do this personally I would have to take out a buy to let mortgage or face a hefty tax bill at the end of the year.
My accountant has told me to that the best way of doing this would be personally and not on the company but I am not sure?
The company which would be purchasing it has no external influences so therefore would be a a stable investment for it.
Your comments would be gratefully received. : )
I am thinking of buying a residential property to rent but unsure what is the most tax efficient way for me to do this. I have the funds in one of my companies to buy the property outright however if I was to do this personally I would have to take out a buy to let mortgage or face a hefty tax bill at the end of the year.
My accountant has told me to that the best way of doing this would be personally and not on the company but I am not sure?
The company which would be purchasing it has no external influences so therefore would be a a stable investment for it.
Your comments would be gratefully received. : )
Gorgonzola said:
Hi guys,
I am thinking of buying a residential property to rent but unsure what is the most tax efficient way for me to do this. I have the funds in one of my companies to buy the property outright however if I was to do this personally I would have to take out a buy to let mortgage or face a hefty tax bill at the end of the year.
My accountant has told me to that the best way of doing this would be personally and not on the company but I am not sure?
The company which would be purchasing it has no external influences so therefore would be a a stable investment for it.
Your comments would be gratefully received. : )
I'm interested in the likely responses here, because I too have some 'spare' in my ltd company.I am thinking of buying a residential property to rent but unsure what is the most tax efficient way for me to do this. I have the funds in one of my companies to buy the property outright however if I was to do this personally I would have to take out a buy to let mortgage or face a hefty tax bill at the end of the year.
My accountant has told me to that the best way of doing this would be personally and not on the company but I am not sure?
The company which would be purchasing it has no external influences so therefore would be a a stable investment for it.
Your comments would be gratefully received. : )
One short term advantage, as I see it, are that if you take the spare money out of the business, you have to pay tax on it, before you can invest it in property.
Another is Ltd Liability. If the loan interest can't be met, it doesn't cost YOU, only the company.
Also, with a company, you can chose to take the profit as dividend or delay it to an other tax year, which given that child benefit is not salary related, might be a nice way of putting 2 fingers up at the Government. Take the dividend when the kids have left home in 15 years ?
When I had a discussion with a professional, about funding a 60% loan on an investment, he told me to re-mortgage my own house (which I've paid off) as I'd get lower interest rates, for a home loan, and use the money to buy the property outright. I'm never doing that ever. I spent 20 years bricking myself about the mortgage, and I'd rather not again
No expert, but maybe just a few month ahead of you down this route.
I'd been looking at this for ages, and last month bit the bullet and bought 3 properties on BTL mortgages. I could have bought outright but all the advice and my spreadsheet models said it was a better return with a mortgage and multiple cheaper properties.
Run through some figures yourself, but first off in my area at least the lower the property price the higher the rent relatively. So you would get, for example, more rent out of 3 x £75K properties than you would from a single £225 property. But that doesn't answer how to fund them.
Here's my maths in very round figures; lets say you have a £100K property bought outright and you get £7K PA rent. Excluding insurance, charges etc., you're making 7% on your £100K. Now assume you have a 60% mortgage at 3.9% so your 'investment' is only £40K. But against your £7K income you're paying £2340 interest, so £4660. But it's a £4660 return on only £40K so 11.65% return....which is a whole lot better than 7% if you're purchasing outright. Better still when you can claim the mortgage interest against tax.
So using the figures above if you spent £200K on just 2 properties outright you'd make £14K PA. Use the same cash to buy 5 properties on BTL mortgages and you get £23,300. And if you offset the interest against tax you're making a whole lot more.
This is all a bit simplistic with no arrangement fees in there, insurance, letting agent fees (if you use one) etc etc., but do some maths with rents/costs in your area, and the deposits/rates you can get. For any given sum I'd be very surprised if the answer you came up with wasn't to use the funds for as many deposits as you can on as many cheap properties you can find, rather than buying outright - and put the properties in your (or your wife's) name to get tax back on the interest.
This is what I've come to the conclusion of certainly, and as above I kicked off with 3 properties last month - money where mouth is etc. If it looks like its going to fly and it all works out with the tenants and agents then I'll do a some more before the summer. Just need to get the first few months of being a new landlord under my belt.
I'd been looking at this for ages, and last month bit the bullet and bought 3 properties on BTL mortgages. I could have bought outright but all the advice and my spreadsheet models said it was a better return with a mortgage and multiple cheaper properties.
Run through some figures yourself, but first off in my area at least the lower the property price the higher the rent relatively. So you would get, for example, more rent out of 3 x £75K properties than you would from a single £225 property. But that doesn't answer how to fund them.
Here's my maths in very round figures; lets say you have a £100K property bought outright and you get £7K PA rent. Excluding insurance, charges etc., you're making 7% on your £100K. Now assume you have a 60% mortgage at 3.9% so your 'investment' is only £40K. But against your £7K income you're paying £2340 interest, so £4660. But it's a £4660 return on only £40K so 11.65% return....which is a whole lot better than 7% if you're purchasing outright. Better still when you can claim the mortgage interest against tax.
So using the figures above if you spent £200K on just 2 properties outright you'd make £14K PA. Use the same cash to buy 5 properties on BTL mortgages and you get £23,300. And if you offset the interest against tax you're making a whole lot more.
This is all a bit simplistic with no arrangement fees in there, insurance, letting agent fees (if you use one) etc etc., but do some maths with rents/costs in your area, and the deposits/rates you can get. For any given sum I'd be very surprised if the answer you came up with wasn't to use the funds for as many deposits as you can on as many cheap properties you can find, rather than buying outright - and put the properties in your (or your wife's) name to get tax back on the interest.
This is what I've come to the conclusion of certainly, and as above I kicked off with 3 properties last month - money where mouth is etc. If it looks like its going to fly and it all works out with the tenants and agents then I'll do a some more before the summer. Just need to get the first few months of being a new landlord under my belt.
Overseas holding company can work well as long as the house is sub £2m - just income tax (non-re landlord) and no cgt (depending on setup) but requires very specialist advice...
http://www.offshoreformations247.com/offshore-comp...
In the interest of fairness - expect stories like this to get the gaar's attention !
http://m.guardian.co.uk/uk/2012/nov/26/secret-offs...
http://www.offshoreformations247.com/offshore-comp...
In the interest of fairness - expect stories like this to get the gaar's attention !
http://m.guardian.co.uk/uk/2012/nov/26/secret-offs...
Couple of things to consider if you are thinking of using a Ltd Company to purchase BTL properties:
1. Is your current company sector registered for Property related activities
2. Much more difficult to get a mortgage for a Ltd company
I set up a seperate Ltd company to buy property, and loaned the money interest free from my main company to the second company.
Main advantage of buying via a Ltd is not having to pay personal tax on the money to purchase the property, and more flexibility in taking the money out of the companies
1. Is your current company sector registered for Property related activities
2. Much more difficult to get a mortgage for a Ltd company
I set up a seperate Ltd company to buy property, and loaned the money interest free from my main company to the second company.
Main advantage of buying via a Ltd is not having to pay personal tax on the money to purchase the property, and more flexibility in taking the money out of the companies
I looked at this a little while back and was going to run it through a company. The advice always seemed to be dont do it as it will cost you when you sell. My argument was that setup properly the business would continue to provide income and although you may want to buy and sell certain properties within a portfolio you would just let it run and run. A pension pot which could then be handed down to the next generation.
Another bonus to me was that I had the money personally so paying it in to the company as a loan would make the drawings tax free until repaid. I was going to defer any repayments until retirement so it seemed like a good solution.
It is almost certainly something I will look at in the future.
{As you can probably tell I am not an accountant so your advice and interpretation may vary!}
Another bonus to me was that I had the money personally so paying it in to the company as a loan would make the drawings tax free until repaid. I was going to defer any repayments until retirement so it seemed like a good solution.
It is almost certainly something I will look at in the future.
{As you can probably tell I am not an accountant so your advice and interpretation may vary!}
I'm intrigued by this too - I've bought a couple of properties through my limited company but would be interested in others views on it.
Looking at tvrolet's example:
If your £40K investment to get a BTL mortgage investment is money taken out of a Ltd company assuming you're paying 40% tax it costs £16K in tax to get it out so thus the initial deposit actually costs £56K not £40K - that's a return of 8.3% which is much closer to the return given if you were to buy through the Ltd Co. Add survey / arrangement fees etc and it gets closer still although as noted you would get tax relief on the interest.
My view has been (and I stand to be corrected / shot down in flames) is that it depends why you are buying. If you intend to sell at some point it may be better to buy as an individual; if you intend to keep the properties indefinitely then it may be better to buy through a Ltd Co because as NorthDave mentioned you can take the income as a pension paid tax efficiently through dividends etc. The downside is that the company cannot afford to get into difficulties for any reason as you'd stand to lose your pension....
Looking at tvrolet's example:
If your £40K investment to get a BTL mortgage investment is money taken out of a Ltd company assuming you're paying 40% tax it costs £16K in tax to get it out so thus the initial deposit actually costs £56K not £40K - that's a return of 8.3% which is much closer to the return given if you were to buy through the Ltd Co. Add survey / arrangement fees etc and it gets closer still although as noted you would get tax relief on the interest.
My view has been (and I stand to be corrected / shot down in flames) is that it depends why you are buying. If you intend to sell at some point it may be better to buy as an individual; if you intend to keep the properties indefinitely then it may be better to buy through a Ltd Co because as NorthDave mentioned you can take the income as a pension paid tax efficiently through dividends etc. The downside is that the company cannot afford to get into difficulties for any reason as you'd stand to lose your pension....
Back in the early 90's I purchased one block consisting of 4 x 2 bed flats in an affluent area of Bristol, price then £170k with possible selling price now of £900+k, potential rental return of £42k, due to high rental demand, the property is always fully let.
At the same time bought four properties between £35k to £90k, possible resale today of £600k, with rental return potential of £32k, properties in social housing areas, high turnover of tenants, high maintenance costs, high rental arrears etc. etc.
With hindsight I wish I had bought two £170k properties, would have given me a much better investment, less stress, agro, less roofs, gardens, neighbours, tenants, court appearances etc. etc.
As for a Limited company, keep it simple and under one's own controls through self management.
At the same time bought four properties between £35k to £90k, possible resale today of £600k, with rental return potential of £32k, properties in social housing areas, high turnover of tenants, high maintenance costs, high rental arrears etc. etc.
With hindsight I wish I had bought two £170k properties, would have given me a much better investment, less stress, agro, less roofs, gardens, neighbours, tenants, court appearances etc. etc.
As for a Limited company, keep it simple and under one's own controls through self management.
Tafford said:
My view has been (and I stand to be corrected / shot down in flames) is that it depends why you are buying. If you intend to sell at some point it may be better to buy as an individual; if you intend to keep the properties indefinitely then it may be better to buy through a Ltd Co because as NorthDave mentioned you can take the income as a pension paid tax efficiently through dividends etc. The downside is that the company cannot afford to get into difficulties for any reason as you'd stand to lose your pension....
I am an accountant and thats how I explain it - it depends on the motive and sometimes the ability of the company to obtain funding (which may make the motive and ownership vehicle factor redundant).David
Factor in accountancy fees for running the limited company every year - annual returns and the like.
I also didn't think you could loan money free of charge between companies - there had to be some form of interest charged.
If you need to borrow money then forget about it as mortgage companies will not want to touch it.
I also didn't think you could loan money free of charge between companies - there had to be some form of interest charged.
If you need to borrow money then forget about it as mortgage companies will not want to touch it.
Is it possible to sell a property to my own limited company (taking into consideration my own CGT which will be minimal) and hence I have effectively loaned my ltd company the purchase price of the flat. I can then take this money back out tax free as I'll be getting repaid a loan.
Ie, if I have a property worth £100k (non mortgaged); I sell this to my Ltd company for £100k (fair market value ofcourse) I can then take back my £100k over the year from my company? I plan to keep the property lifelong in anycase.
Ie, if I have a property worth £100k (non mortgaged); I sell this to my Ltd company for £100k (fair market value ofcourse) I can then take back my £100k over the year from my company? I plan to keep the property lifelong in anycase.
zuby84 said:
Is it possible to sell a property to my own limited company (taking into consideration my own CGT which will be minimal) and hence I have effectively loaned my ltd company the purchase price of the flat. I can then take this money back out tax free as I'll be getting repaid a loan.
Ie, if I have a property worth £100k (non mortgaged); I sell this to my Ltd company for £100k (fair market value ofcourse) I can then take back my £100k over the year from my company? I plan to keep the property lifelong in anycase.
If you sell the property to your ltd company, surely you've already paid yourself ltd company to you) for it?? If you already own it personally outright, I'm struggling a bit to see what benefit you'll derive by transferring to a ltd company. Currently any rental income is taxable to you, but if rent is paid to your ltd company and you take the money out e.g. pay yourself, it too will be taxable.Ie, if I have a property worth £100k (non mortgaged); I sell this to my Ltd company for £100k (fair market value ofcourse) I can then take back my £100k over the year from my company? I plan to keep the property lifelong in anycase.
You'll be liable for legal fees as well, plus any SDLT if applicable. If it's a BTL, you may be liable for CGT too!
What about wills - family, kids etc. Having it in a ltd company then makes transfer on death more difficult.
My limited company doesn't have enough funds to buy the property just now outright so in essence I (zuby84) will be lending my ltd company £35k for my Ltd co to buy a property from me (zuby84)
This then goes as a £35k loan from me to my company and hence I can take £35k out back from my company when funds allow (hence my ltd company paying me back the loan it has taken from me)
It's a very low value property as you can see and I won't be liable for any CGT or Stamp duty etc...
Long term; I want to slowly move all my properties/investments into my Ltd company as I want to use my Ltd company as an investment vehicle rather than using it to live off... hence it makes sense to do this though a ltd company where only corp tax is payable rather than paying tax at 40%+ before I can re-invest.
Just trying to get a hold of my accountant; but do I have it right?
This then goes as a £35k loan from me to my company and hence I can take £35k out back from my company when funds allow (hence my ltd company paying me back the loan it has taken from me)
It's a very low value property as you can see and I won't be liable for any CGT or Stamp duty etc...
Long term; I want to slowly move all my properties/investments into my Ltd company as I want to use my Ltd company as an investment vehicle rather than using it to live off... hence it makes sense to do this though a ltd company where only corp tax is payable rather than paying tax at 40%+ before I can re-invest.
Just trying to get a hold of my accountant; but do I have it right?
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