Forming a company with Buy To Lets

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    Forming a company with Buy To Lets

    Hi Folks
    I own a few buy to let properties and thinking of forming a company. Has anyone done that before?
    What things to I need to consider before deciding to form a company?
    Would I need financial/legal advice in order to make my decision?

    Could someone recommend any online finance/legal advice?

    Thanks in advance for your responses.

    Depends on your level of legal and financial knowledge.

    The key issue is that the company is a different, but connected person, so you need to sell the properties to the company and you will be treated as doing so at the open market price, for capital, and, I think, SDLT, tax purposes, regardless of how much you actually pay.


      Also keep in mind that taxation on companies is changing (to reduce the advantages) and will change more (to reduce the advantages) and that political changes (Corbyn) might mean that anyone in business or contributing to the economy is actively penalised - and you will be caught up in that. Bearing in mind the costs, it may be much of a muchness.

      You may also crystallise your capital gains in one shot, which may not be a great thing to do -- especially at a market peak. Depending on what you have done so far, this may end up with a one off personal CGT bill of tens or even hundreds of thousands of £. Can you afford to pay that one-off bill out of your cash reserves otherwise you will end up in deep trouble?

      The disadvantages are less if properties are in there from the start.


        My fellow posters have quantified the downsides in terms of selling your current properties to a new Co entity. HMRC will definitely regard each property transaction as a Sale and subsequent purchase and by default render you liable for Capital Gains Tax as well as having to pay a SDLT Premium, in addition there are the associated legal costs. Now to arranging subsequent borrowing , the area where I am qualified to comment on.

        You would not be able to continue to enjoy the existing funding arrangements which exist in your personal capacity and if the properties currently enjoy exceptionally low reversionary rates then the economic downsides need to be carefully taken into account.

        Those lenders which currently entertain lending on BtL via Ltd Co’s offer lending normally up to 75% with mortgage terms commensurate with those for private borrowers, the additional upside is that the rental stress calculations tend to be slightly more attractive than the average of 145%@ 5% , a feature which can ease any concerns over general affordability.

        As with any corporate borrowing you would be required to provide full personal guarantees for each loan; one feature which care needs exercising is whether the lender would register a Fixed and floating charge across all assets held within the company, not all lenders do but your broker should advise where this is a probability.

        The majority of lenders have a preferment for Single Purpose Vehicle companies , I.e set up specifically for the purchase and holding of Property for investment as opposed to Trading Companies but your accountant would be able to assist in ensuring the right vehicle is created with the necessary SIC code.

        As has been already commented on there is an argument to be made in undertaking what you are proposing however it is accepted that irrespective of which political party is in power that there is a declared intent to “penalise” Landlords from enjoying the sort of tax benefits which presently exist particularly for those holding residential property in Limited companies.

        I hope the above helps in your deliberations, not easy and one which definitely needs very serious considerations.


          Originally posted by geek84 View Post
          Would I need financial/legal advice in order to make my decision?

          Could someone recommend any online finance/legal advice?

          And, very definitely, no.

          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


            The main reason for considering a company to hold your properties should be for tax savings.

            1. When the properties are held under your own name , the rental profit becomes part of your annual income which is taxed at :

            First 0- £11K is tax free , because of your annual allowance/
            then between £11K - £45K is taxed at 20% rate.
            above £45K, the tax rate is 40%

            When you sell a property, the capital gain ( excluding first £ 11K allowance ) , is taxed at 18% or 28%.

            2. If you hold the property under company name , all of annual profit declared by the company is taxed at 19% .
            If your company buys a property with a mortgage, the interest rate paid by company will probably be higher than the rate charged under personal name. So the benefit of lower tax may be lost because of higher interest rate paid on mortgage loan .

            3. Before going to seek professional advice, you need to have some idea of what annual income you will be getting from rental property held in your own name and under company name.

            4. Running a company requires annual filing of accounts to Companies House and submitting tax return to HMRC. It becomes a hassle if you do not submit before deadline and get fined.


              Further Gordons excellent post current legislation permits directors to take income from the company by way dividends for which the first £5000 is tax free and only the balance is added to all other elements of income but as with my previous post this initself could be reduced.


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