BTL - Ltd Company

[Candellara]

The issues within the UK BTL market are well documented with all of the legislation coming into effect / 2nd home stamp duty etc so what are all the BTL landlords up to in order to mitigate this?

I'm still looking to purchase a small BTL property and I assume the most prudent / tax efficient way is set up a Ltd company?

[Candellara]

JPJPJP said:

Your assumption could be spot on, or miles off. It depends on your broader situation and plans.

OK, so we have some BTL's in Germany but it's a totally different market, proposition etc and have tried to avoid UK due to mortgages, regulations etc. I looked at this a few years back and decided that the UK has bastardised this sector and we just used some capital to buy another in Germany.

That said, I'm revisiting it as i want to buy a 3 bed semi (circa £325k) and let it to my Daughter. Deposit £125k and can get an interest only regulated mortgage on 200k. Plan is to let to Daughter at market rate and overpay mortgage annually with the difference between mortgage (circa £300 per month) and tax liability.

Mortgage is absolutely A OK, through my name but how is this affected if running through a UK Ltd Company?

[Candellara]

BoRED S2upid said:

I’m sure I’ve read that this is a big no from many lenders letting to family. Not sure how they would find out but they aren’t keen on it.

There's a few lenders that provide "regulated" mortgages so that's ok and we're approved on this basis

[Candellara]

If we go down the standard route of buying in my name but the rental agreement is in my Wife's name - we still have to declare 50% of the net income at my tax rate and 50% at my Wife's tax rate. If you do the math's - it's still not particularly attractive to do it in the UK when mortgage relief is scrapped - hence questions about routing it through a LTD company

What's everyone else with BTL's doing (apart from selling them up :-))

[Candellara]

Apparently regulated BTL mortgages via a new Ltd Company are no problem as we'd be the Directors of the Company.

We've had some initial info and illustration from one broker but i always like to get some comparative quotes. Can anyone recommend any good BTL regulated mortgage providers?

[Candellara]

Macron said:

Unless your daughter already holds property, or potentially even if she does, why wouldn’t you give her the cash and guarantee the loan if need be, meaning (potentially) no +3% stamp, no BTL rate, made worse with the family aspect adding a loading I’m sure.

Surely efficient tax planning means you give it to her!!?

Mortgage rate on regulated mortgage is 2.03%. Daughter doesn't earn enough to secure a 200k mortgage on her own (she's only just started work after leaving Uni) and I don't want the complications of her partner wanting a slice should they split at any point. She's currently renting a flat which is costing her & her partner £1k per month so the plan is, is to put it into the family coffers rather than another landlord. We'll take her rent and pay the mortgage down and subsequently the income thereafter. Ultimately the property will be left to her anyhow but that's some 25 years away. Her plan is to buy a property in maybe 5 years time at which point i'll sort her out with a deposit of her own and we'll continue to let said property.

So it addresses the immediate issue of her paying someone else's mortgage off rather than keeping it in the family.

Or is my logic flawed?

[Candellara]

BoRED S2upid said:

Not at all. A lot of people do this when children are at uni. Makes perfect sense.

So do you still get whacked with 2nd home stamp duty? as is the Ltd Company that's purchasing the property? Also, the mortgage payments and any other costs are offset against any annual profit. If we make maximum overpayments on the mortgage, there'll be effective zero profit until the mortgage is paid down so the tax liability will be zero?

[Candellara]

MrChips said:

You can do a declaration of trust to put the benefit of interest into your wife name. You still jointly own the house but the benefit is your wife’s.. submit a Form17 to HMRC and once they’ve acknowledged it then you can declare the income from that point on to be solely in your wife’s name.
Cost us around £400 from memory to have the declaration drawn up and get some independent advice.

Oh and this was on the massive assumption that your wife gets paid less than you... it also works the other way round if you need it to!

That's how we do things with our German rental i.e Properties in joint names but rental agreements are in the Wife's name and all monies paid to her.(so much easier over there). After taking advice from our accountants in the UK, they said that even if the property was in my Wife's name only along with the rental agreement, HRMC would view this as shared and we'd need to declare half the income at my tax rate

[Candellara]

JPJPJP said:

Company pays the higher rate of SDLT.

If the company makes a profit (it has to if it can afford to pay down capital I suppose) then it could have a tax liability of its own

Think about how the deposit is put into the company and how / when it comes back out

Many other things but if you are only buying one, they are less significant

Yes, good points. i'd need to check this with our accontants

[Candellara]

MrChips said:

That’s correct... the name on the rental agreement and on the deeds is irrelevant if you’re married... however the Form17 route is the recognised process to do exactly as you’ve outlined.

https://www.gov.uk/government/publications/income-...

From their main page
“ If you jointly own property with your spouse or civil partner and want to change the split of income from it for tax purposes use Income Tax form 17.”

Have a chat with a solicitor and/or a different accountant.

Looks like I need a different accountant! This aside, I think the best route is registering a company and getting a regulated mortgage as I think it makes more sense as you get tax relief on the mortgage payments - which makes a lot of difference in terms of viability.

[Candellara]

lewisf182 said:

My accountant advised me entrepreneurs relief is a viable exit strategy (for now at least anyway!) for a company set up around property like this. Hell, you can even do each property in a separate company and wind them up each time I believe only paying that special tax rate.

Out of interest, could people please dm me or let me know what mortgage broker or mortgage lender they’ve used when using an SPV for property? Seen 2.03% rate mentioned above which seems crazy good?! Better than my resi mortgage!

UK mortgage market really grates on me and another reason why until now we haven't pursued a UK BTL. 2.03% for a regulated BTL was through UK Property Finance. I'd be also interested to hear of other providers

Our German bank doesn't differentiate between residential or letting - a mortgage is a mortgage secured on the property. Our last mortgage deal in Germany was 1.4% fixed for 10 years

[Candellara]

Been around the houses with this (excuse the pun)

My synopsis so far is that the UK Government is hell bent on destroying the UK BTL market (and quite successfully) and UK Mortgage Lenders are greedy sh*ts that want their cake and eat it too.

The mortgage brokers and providers dangle attractive rates but the reality is that the best you'll achieve on a UK BTL SPV mortgage is just under 3% despite LTV of circa 60%Feeling as though we may as well just forget about investing in UK property and just continue with buying more property in Europe.