Advice

[jhoggard]

Hi,

I currently have a property rented out in my own name with a fair bit of equity around 50% LTV this is actually a repayment mortgage which i'm looking to switchover to a interest only. When i do this i'm also taking money out of the property to put towards another which i'm looking to purchase within a limited company.

My main problem is 40% tax hence why i want to put it into a limited company to pay 19% corp tax. My long term goal is to keep reinvesting the money back into the business to build up my portfolio.

Please can i have some advice on the following questions:

1. When i take money out of my current property and put it towards another which will be in a limited company will i have to pay tax/capital gains on this?
2. In the long run say when i retire i want to keep the majority of the properties within the business but if i decide to sell 1 how much tax/capital gains would it be within a limited company?
3. with a limited company i only see the benefit if you want to keep money within the business and not taking a steady income as you get the 19% corp tax + 32% dividend tax which is a lot i'm aware you get 2k dividend allowance but this still isn't great if you want to take a steady income. Is there more tax efficient ways around this?

Regards,
James

[jpkeates]

1 - Yes, the company will have to buy the property and you will be selling it. So there's a CGT "event" for you and the business will pay SDLT. You need to think about structure if you're going to borrow to grow, most lenders will want one company per property and director's personal guarantees. So you may find it difficult to have multiple properties in a single company unless you're quite rich. And the personal guarantees become tricky after the first one (again, ignore this if you're rich).

2 - The main part of this process that everyone seems to ignore is what happens when you want to end the company (or if you die). Ending a company tax efficiently seems to be quite complex.

3 - Probably the most tax efficient thing is to let the company pay pension contributions for you. Another way of getting the money out is using directors loans, which the company pays from its income.

You need a long talk with a good accountant.

[Gordon999]

1. No. You have not sold the property yet

2. 19% on profit by company.

3. Seek advice from accountant.

[theartfullodger]

Depends to a great degree on tax regulations over the coming years. We only know what the rules are today, not what they'll be in future e.g. when you retire

I expect chancellors to cut back on the advantages of people owning property through companies (well, wouldn't you if you were chancellor) and taxes generally to go up mainly to pay for the HUGE costs of both Covid and Brex**it. Especially CGT.

Careful with those plans.

[JamesHopeful]

most lenders will want one company per property

This is not true in my experience. I currently have eight properties in the same company, across a number of different mainstream BTL lenders, and none of them have batted an eyelid at the number.

Where I have known lenders worry about the company is it doesn't have the correct SIC code (I think "68209 - Other letting and operating of own or leased real estate" is the best one) or if they think it is operating as a trading company rather than pure for lettings purposes (one lender even asked me some questions about the fact that I did some extensive refurbishments/conversions of some properties held in the company prior to letting them, but they OK'd it in the end).

And the personal guarantees become tricky after the first one (again, ignore this if you're rich).

Again, not sure what the issue is here? I have never had a lender query my having done personal guarantees for numerous mortgages.

[SouthernDave]

i concur with James, once you get over 4 properties, they consider you to be a portfolio landlord and want to start seeing cashflow forecasts before lending to make sure the company is buoyant. Directors guarantees each time but no limits on number of properties or number of dofferent lenders.

[jpkeates]

I don't think we disagree.

The OP has one property and is looking to buy a second.
At that point in that business, lenders will want a company per property.

There's a point where that ceases to be the case, when the portfolio gets big enough, or, presumably when someone starts a company with enough properties in the first place.

[SouthernDave]

I started my limited company a year before buying the first property, then bought a second 2 months later, a third 3 months after that, a fourth 5 months after that and so on to where I am now. Our lenders have never said they want a separate company per property. Ive never heard of that, if it were true then it would be an administrative nightmare, not to mention costly.

[jhoggard]

I actually sat down with an accountant firm. They did advice to own a seperate company per property. The main benefit here is
rather than selling the individual property out of the company sell the company although i've not seen this done before so not sure how successful this is? there a great tax benefits to this. I believe the buyer would also avoid paying stamp duty.

I got free advice from a company called GetGround and there prices were very good even with multiple limited companies.