Starting a BTL Company

[e8_pack]

I’ve been searching the internet but as usual I can’t find any specific answers to my queries, hopefully some of you guys will be able to help.

If I started a limited company with the intention of property management/ownership (by the company).

I loan the company 120k of my own personal savings.

• Company buys 3 houses @ 60% LTV for 3 x 90k properties
• Rental income = 650/mth
• 15y Mortgages = 350/mth
• Other fees = 100/mth
• Yield = 200/mth (for arguments sake)

Q1: Can I use the profit to pay back myself for the loan, which will be an expense, thus meaning the business never becomes profitable until the personal loan is repaid? It was all taxable savings anyway so I wouldn’t want to pay more tax to get my money back. Then once the business pays back the personal loan to myself, it will pay tax as due.

Q2: Or, what if I use the income to overpay the mortgages on each property. Will the overpayment be taxable as profit? So would I be better to pay the loan back to myself?

Q3: Also, will the first house the company buys, be eligible for 3% stamp duty? I'm guessing it will as it wont be a main residence, but it will be it’s first house!

[anonymous-user]

Hi - I asked this questions a while back. I did not do it in the end:

http://www.pistonheads.com/gassing/topic.asp?h=0&a...

[JQ]

You won't get finance. BTL loans are not available to Ltd Co.'s, you would require a commercial loan which is different and for which the rates, fees and LTV ratios are significantly worse.

Then factor in the fact you propose to purchase the properties with 110% LTV and I doubt you'll get many banks offering you a loan, even at terrible rates.

[Eric Mc]

yammyfan said:

Hi - I asked this questions a while back. I did not do it in the end:

http://www.pistonheads.com/gassing/topic.asp?h=0&a...

I see you asked your question back in November 2014.

The whole world of landlord tax has dramatically changed in the two years since then.

That's the trouble with tax - the rules never stand still.

[XJ75]

JQ said:

You won't get finance. BTL loans are not available to Ltd Co.'s, you would require a commercial loan which is different and for which the rates, fees and LTV ratios are significantly worse.

Then factor in the fact you propose to purchase the properties with 110% LTV and I doubt you'll get many banks offering you a loan, even at terrible rates.

Where did you get 110% from? OP said 60% LTV. This is easily achievable although you won't get rates as competitive compared to a BTL mortgage in your own name. My guess would be that you're looking at a rate of around 4%.

[JQ]

XJ75 said:

JQ said:

You won't get finance. BTL loans are not available to Ltd Co.'s, you would require a commercial loan which is different and for which the rates, fees and LTV ratios are significantly worse.

Then factor in the fact you propose to purchase the properties with 110% LTV and I doubt you'll get many banks offering you a loan, even at terrible rates.

Where did you get 110% from? OP said 60% LTV. This is easily achievable although you won't get rates as competitive compared to a BTL mortgage in your own name. My guess would be that you're looking at a rate of around 4%.

By adding the 60% he's proposing to borrow from the bank, the 40% he's proposing to borrow from himself and the 10% I'm guessing he's also going to borrow from himself to pay all the fees and taxes.

[XJ75]

JQ said:

By adding the 60% he's proposing to borrow from the bank, the 40% he's proposing to borrow from himself and the 10% I'm guessing he's also going to borrow from himself to pay all the fees and taxes.

But the 40% and 10% is irrelevant isn't it? As this will be considered his company's money, regardless of the source. For the purposes of arranging finance, the LTV will just be 60%, surely?

[JQ]

XJ75 said:

But the 40% and 10% is irrelevant isn't it? As this will be considered his company's money, regardless of the source. For the purposes of arranging finance, the LTV will just be 60%, surely?

It's totally relevant, it's not his company's money, it's money the company is having to borrow. The company is putting nothing into the purchases and a bank will most definitely not like that.

[e8_pack]

yammyfan said:

Hi - I asked this questions a while back. I did not do it in the end:

http://www.pistonheads.com/gassing/topic.asp?h=0&a...

Thanks, good thread with some good information, much appreciated.

[e8_pack]

There is no extra 10%, the 40% is 36k + 4k for fees etc.

So I could lend the company 100% and buy 1 house, then pay myself the dividend and my loan back to zero my tax bill, until the loan is repaid. The accounts should be simple enough for one property so i can do it myself.

The benefit is no increase in my income tax and i pay corporation tax once the loan is repaid.

Once the company builds up an asset or two and has been trading, credit should be easier to come by and i can expand later.

[Eric Mc]

e8_pack said:

yammyfan said:

Hi - I asked this questions a while back. I did not do it in the end:

http://www.pistonheads.com/gassing/topic.asp?h=0&a...

Thanks, good thread with some good information, much appreciated.

Be aware that the thread is 2 years old and there have been significant tax changes since.

[2 sMoKiN bArReLs]

OP, the repayment of the loan is not a business expense. (It's a repayment of the loan). The repayments won't touch your P&L, but reduce the loan value in the balance sheet.

(I reckon...I'm not a proper bean counter, merely an amateur. Proper advice is available elsewhere )

Edited by 2 sMoKiN bArReLs on Wednesday 21st December 07:48

[e8_pack]

2 sMoKiN bArReLs said:

OP, the repayment of the loan is not a business expense. (It's a repayment of the loan). The repayments won't touch your P&L, but reduce the loan value in the balance sheet.

(I reckon...I'm not a proper bean counter, merely an amateur. Proper advice is available elsewhere )

Edited by 2 sMoKiN bArReLs on Wednesday 21st December 07:48

Ok, I've checked the government site and you are correct. So in that case, I can only be repaid using the profit after tax?

This may still be bettee than rolling it all up in income tax though.

Will the new BTL rules on mortgage interest apply to a LTD company?

[13m]

e8_pack said:

Will the new BTL rules on mortgage interest apply to a LTD company?

Not so far.

[XJ75]

e8_pack said:

Ok, I've checked the government site and you are correct. So in that case, I can only be repaid using the profit after tax?

This may still be bettee than rolling it all up in income tax though.

Will the new BTL rules on mortgage interest apply to a LTD company?

The new BTL rules on mortgage interest apply to income tax and therefore don't apply to LTD companies. One thing to consider which a lot of people overlook is that you pay corporation tax (currently 20%) on any profit, but you also will have to pay income tax if you want to take money out of the company. There are ways you can minimise the income tax, but a lot of people only consider the corporation tax.

[Jockman]

XJ75 said:

e8_pack said:

Ok, I've checked the government site and you are correct. So in that case, I can only be repaid using the profit after tax?

This may still be bettee than rolling it all up in income tax though.

Will the new BTL rules on mortgage interest apply to a LTD company?

The new BTL rules on mortgage interest apply to income tax and therefore don't apply to LTD companies. One thing to consider which a lot of people overlook is that you pay corporation tax (currently 20%) on any profit, but you also will have to pay income tax if you want to take money out of the company. There are ways you can minimise the income tax, but a lot of people only consider the corporation tax.

There are ways to minimise the corp tax too

[AnimalMother]

I have LTD company that owns buy to lets.

You can get mortgages for LTD company buy to let, the rates are slightly higher. But due the the interest rate relief changes and thus lots of landlords looking to change to LTD companies, I expect to see growth of buy to let mortgage products for Ltd companies.

It also depends on what sort of property your buying, larger houses, flats or larger HMO's are going to be from a comercial lender anyway and there rates for Ltd companies are mostly the same as sole trader rates.


They will all ask you to be a personal guarantee of the debt though!


With regard to the directors loan to the company to fund the deposits. Some lenders may want you to promise to not repay that loan to yourself before they have been repayed, there is a name for this written agreement but it escapes me right now. Although I don't have any such agreements in place I choose to not repay myself the loan, as if I sell in the future or need to withdraw tax free for some reason I'm able too.

[RichS]

AnimalMother said:

With regard to the directors loan to the company to fund the deposits. Some lenders may want you to promise to not repay that loan to yourself before they have been repayed, there is a name for this written agreement but it escapes me right now.

Intercreditor agreement?

[e8_pack]

With all the taxes, fees and potential costs, i don't think BTL is very viable unless I get a cracking deal on a house.

Paying off my mortgage actually gives me a better return looking at the current advertising prices and rent revenue on the areas i'm looking at.

Current preference is to pay off my mortgage and add a vehicle to my fleet and enjoy some of my savings this summer, i can save another deposit over the next 12 months and look again, but right now the figures aren't adding up. Things may change of course if the house prices fall so i'll keep an eye on the market.

I don't think i'll lose any money on the cars i'm looking at, so it's probably a good time to enjoy some free motoring this summer, just need a car with good resale potential and not mess about with it!

[barriejames]

Yes it is viable. I have over 20 BTL properties at present. Problem is if you overthink the whole game you will never do it, also you need to be able to sleep well owing serious amounts of money to lenders. The game is only for the brave or stupid (possibly both) bit the ride has been great before it all crashes.

e8_pack said:

With all the taxes, fees and potential costs, i don't think BTL is very viable unless I get a cracking deal on a house.

Paying off my mortgage actually gives me a better return looking at the current advertising prices and rent revenue on the areas i'm looking at.

Current preference is to pay off my mortgage and add a vehicle to my fleet and enjoy some of my savings this summer, i can save another deposit over the next 12 months and look again, but right now the figures aren't adding up. Things may change of course if the house prices fall so i'll keep an eye on the market.

I don't think i'll lose any money on the cars i'm looking at, so it's probably a good time to enjoy some free motoring this summer, just need a car with good resale potential and not mess about with it!