UK Landlord Forum / Life

Hi there after any experience tips or advise on my situation;

1. My wife and I are 40% tax payers and will be continuing work whilst starting in property investment
2. Based on fact that TAX is better for us setting up as a LTD company, but mortgage rates and loan rates are better on a personal basis we are looking at our options.
3. We plan to buy 1st property, 4 years later a 2nd, 3 years later a 3rd, then one every 2 years. in 20 years time we hope to have 10
4. In 20 years we stop work and start to take a salary / dividend at most efficient tax rate.
5. After 5 years of withdrawing we sell all properties and close up.

After seeing one accountant they have suggested:

By property in our personal names and mortgage in our personal names.
Set up a LTD property management company to charge the rent etc
Tenant pays rent into management company, who take a cut and pay the remainder to us, which then pays exactly the mortgage rate and no more. Tax on this is offset as interest only mortgage.
The profit builds up in the management company at corporation tax rate of 20%. We then withdraw in 20 - 25 years time as salary or dividends.

Does anyone have any better suggestions of can comment if this plan works?

If you raise the money on your private already owned property, lend it to the company, or use it to set up Share Capital to give a nice balance sheet, down side you can't charge it interest on the loan, the company buys the property and lets it out and keeps profit.

Do this as much as you can.

Little while longer you can then try and fund from the company, to expand.

Your best deal will be on remortgaging your private house in any event.

If a property has been empty for a while the government are offering £15,000 at 5% to do it up / flip it / rent it.

Lend your company the money, even if you have to borrow it personally, this is better for your tax position. In my opinion.

Hi, thanks for you response.

we wont be raising funds on our own property, we will have a family investor that we will repay with interest and will also take a loan for first 3 years.

Figures below are very lose without various other costs, but gives you the idea...

Perhaps you can comment or shed any light on tax!

Sole Trader side:
Buys Property
Private Investor Loan repayments at £570
Personal Loan with repayment at £575
BTL mortgage at £325 per month
We invest £780 per month for first 3 years
Interest on loan and mortgage used to offset tax
TOTAL OUT £1,370 per month
TOTAL IN FROM MANAGEMENT COMPANY: £590
BALANCE RUNS AT £0
TAX =

Property Management Ltd company:
Charges Tenants for admin
Takes Rental at £725
Pays Sole Trader £590
Keeps £135 a month
TOTAL IN £725
TOTAL OUT £590
TAX = ?

I think without looking a property company making less than £10k a year pays no tax.

Capital Gains can play a part, best if you intend to keep for a long time to do it sole trader.

Based on your numbers I would suggest it's not worth it!

Sorry.

Thanks....

Long term plan for info:

House 1 - figures as above for 3 years ( £725 rental in, our supplement of £780 in,  £325 mortgage out, Loan £575 out, investor £570 out ) then after 3 years £725 in, £325 out.
House 2 - 3 years as ( £725 rental in, £325 mortgage out , £570 investor out ) then after 3 years £725 in, £325 out
House 3 - 3 years as ( £725 rental in, £325 mortgage out, £570 investor out ) then after 3 years £725 in, £325 out

At 10 year point - Rental in = £2,175, Mortgage out = £975 = Profit of £14,400 per annum

Then onwards another house every 2 years, funded by profits of the company, then from year 15 - 2 houses every 2 years, until year 20 when stop with 11 houses. 

11 houses = rent in £95,700 Mortgage out = £42,900 = Yearly profit of £52,800 for 5 years.

At year 25.... £264,000 balance, plus any capital growth ( age 50 retire from my higher rate tax salaried job and take this money as salary / dividend )

I would avoid investor and loan BUT I would have to save £780 a month for 4 years before i could start....I want to go now so I will borrow and still just put in the £780 a month.


QUESTIONS REMAINING:

• 
  Can I have a personal loan in my name to then use as a sole trader to fund a house purchase under buy to let?
  Is the most tax efficient way for a 40% tax payer to get into buy to let to buy houses as sole trader and manage them through my own Management company?
  At 10 year point when I will be making £14,400 is this the first time I will pay 20% tax due to the £10 tax free ?
  Is there any benefits to putting my own personal home into the management company also?

Hmmm.

I can say with almost 100% certainty your plan will not work.

Sorry, I hate being rude/offensive/negative.... no it doesn't look that way does it!

We will never see for another 20 years this combination of house price, rental yields, low interest rates. Your plan assumes these factors will remain constant, and they won't. ( if we see it again, or it may stay the same, I could be wrong)

I would much rather see a plan that worked on the basis of capital growth and remortgage to expand, especially with you investing your time and expertise in major property improvement to create equity.

Property investment is a business, not a business plan, you need to be flexible and move with the market, and the best deals are on the peripheries.

My only advice based  on your numbers, if you want to do it, employ KISS, and get on with it, and pay the tax at 40%, at least that means you'll have made a profit. Then once your paying £2000 a year in tax, look at other vehicles to transfer the assets into, realistically it's going to cost you nearly this much in statutory fees Audit, accountancy, legal etc to run a company. But 2 years time, you'll look at your plan and really struggle to get a house which meets your targets, I promise!

Plus you will find out that renting is not as easy as you think, there will be a void, when you least expect it, you'll be unable to sort it out, your builder will let you down, there will be arrears, and 6 months without any income, and years when you don't make money, do your numbers on 2 months a year empty, where you will have to pay the council tax as well............

Something like 80% of business' fail in the first 5 years, you are starting a business, it is not a personal thing....

I know you were asking for tax advice, and I have given you my opinion on your business, but there are millions of accountants in this world who have insurance in order to give you advice, maybe try that avenue, and pay for it, rather than asking a load of no marks on a forum??

Are you sure you wouldn't be better off simply offsetting the losses you plan against your income tax - you'll pay as now through PAYE, but you can claim back your losses to offset some of that every tax year.

I don't think the limited company figures are giving you anything at all?
The limited company pays corporation tax (call it 20% - but you might be entirely exempt as a small business)
If you take out anything as salary, you'll pay income tax(40%) on top of that.
If you take anything out as dividends, you'll pay dividend tax (20%) on top of that.
So you're paying a lot of tax that route - where if it didn't exist, you're not paying any of that.

Iv run a comparison now and I do think going personal tax return vs ltd is the way for me. Would you agree?

Major difficulty im having is the 20k loan for a deposit.... would this work?

I already pay into an account £1000 a month repaying a deposit for my own home to my parents... got 10k in it
If I took a 20k loan and put this into the same account 3 months before applying for mortgage. ....I then have with 3months banks statements showing £1000  a month 'savings' and a deposit of 30k.....will this be acceptable.??

P.s thank you all for your responses fully appreciate it

I've not seen any way that a company can help over a couple's personal tax situation for residential property.
I can see it being possible - but your situation would have to be pretty unusual.
Commercial property would be different.
I do worry about your accountants advice.

No one is going to advise you to lie to a mortgage company.
You can't hide another loan, it'll just be different box on the form.
And they'll credit check you to verify what you put on the form.
Lenders are not like they were pre-2008.

You'd be better asking your parents to defer that repayment and use the genuine savings as a deposit.
I'd also suggest that you check out how you look to Experian.

And (this is purely a personal opinion) you're planning a massive amount of debt.
Your plans depend on interest being low, everything renting 12 months a year, house values increasing and being able to borrow at a value way ahead of your income.
Unless you know how to predict the future, you're being very ambitious.
What would 6 months with no rent, a fire or one of you losing your job do to your plan?

Quote from: jpkeates on January 19, 2014, 11:37:05 AM
I've not seen any way that a company can help over a couple's personal tax situation for residential property.
I can see it being possible - but your situation would have to be pretty unusual.
Commercial property would be different.
I do worry about your accountants advice.

No one is going to advise you to lie to a mortgage company.
You can't hide another loan, it'll just be different box on the form.
And they'll credit check you to verify what you put on the form.
Lenders are not like they were pre-2008.

You'd be better asking your parents to defer that repayment and use the genuine savings as a deposit.
I'd also suggest that you check out how you look to Experian.

And (this is purely a personal opinion) you're planning a massive amount of debt.
Your plans depend on interest being low, everything renting 12 months a year, house values increasing and being able to borrow at a value way ahead of your income.
Unless you know how to predict the future, you're being very ambitious.
What would 6 months with no rent, a fire or one of you losing your job do to your plan?

That is truly amazing, your post is the exact same form as a Sonnet!

I am nearly in tears.....

Seriously your advice is very sound.

Although we mustn't know a trier.

Personally it's all in the development gain, if you buy something for 60, spend 30 on it and its worth 125, then your equity is instant, your financing easy, your little package of Rent - Mortgage(capital and interest please)-Insurance-fees-repairs-counciltaxonvoids-improvements-etc = Positive Cash Flow, from year one, the it's good.

Borrow from friends and family on the 60k, 30k on 0% cards, Barclays at 3.49% on the BTL mortgage at the end.

They are few and far between mind.

Sometimes the 60 can be gleaned from selling your house and going to live in said shit hole, done that  too.

Oh and stop watching homes under the hammer, they record 200 auctions a year, 20000 properties to show you how 30 people found it a piece of piss, that's 1 in 300.

The other 299 who lost there shirts come to this forum and leave one very angry post..........

The people who risk everything and it comes up roses write the books.

I don't want to put anyone off from trying something ambitious.
But this is a business, and you need a viable business plan, and most people can't put one together.
You need something that outlines the assumptions you've made and what happens if they don't hold up.
Second best thing to a plan "B" is knowing you haven't got one.

Imagine pitching your business plan on Dragon's Den...

Thanks. Do have a very extensive and detailed business plan also covering what ifs etc. Already been told by 4 business people and entrepreneurs its top notch but I know means nothing until 1. I put into action, 2. Learn review and adapt the plan