Do we form a limited company ?

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    Do we form a limited company ?

    Less of a tax question than a 'security 'question .

    We are amateur landlords who endeavour to do things properly and professionally.
    Portfolio of just 3 b-to - lets.

    All go through our normal individual paye tax returns.

    Am considering putting the properties in a seperate company to split them from our 'normal lives' where we have paye employment.

    Having just about ridden out the property storm, its probably made one think a bit harder and at moment our property business and domestic day to day lives are inextricably linked.

    If we were to fail as individuals (maybe be made redundant and out of work for long period) it would bring the properties down with us-or if the property side failed because perhaps we lost 2 tenants at once and could'nt get new ones for 6 months-or something horrible happened -that ould equally bring us down as individuals if we had to subsidise the btl mortgage for an extended period

    I guess we are running a bit scared and thus considering putting the properties into a separate company so if that side 'failed' it would have less of an impact on us as individuals as we would keep our normal lives going in and remain owners our own house.
    Vice versa-if we 'failed'-prolonged redundancy/sudden poor health/ the property side could perhaps keep on going.

    Am i making sense?

    Thus questions are:

    Am i thinking along the right lines to put properties in a seperate company to minimise the link.
    Has anybody else with a small portfolio done this?
    Does it make sense -both financiallyand to us-more importantly -from a 'security' of lifestyle aspect
    ?

    #2
    If you subsequently set up a limited company and transfer the property to it (effectively sell), you will have to pay Stamp Duty Land Tax if the value is greater than £125,000. Probably not cost effective.

    Suggest for any future purchases you properly research whether it suits your tax circumstances to buy in your name or your limited company.

    There are no firm figures, but a large proportion of landlords own their properties as private individuals and not through a company.

    Comment


      #3
      1. It's vital to understand what 'limited' means in this context.
      2. It does not mean that the company has limited liability. Was that what you thought and why you were considering it?
      3. Instead, it means that (in case of the company's insolvency) each member's liability is limited to:
      a. [limited by shares] the price paid for the shares; or
      b. [limited by guarantee] the nominal guarantee amount, usually £1 only.
      JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
      1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
      2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
      3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
      4. *- Contact info: click on my name (blue-highlight link).

      Comment


        #4
        3 applies;

        (no 2 would be nice but somewhat wishful thinking !! )

        Comment


          #5
          You will find it won't work. The bank will almost certainly require individual personal guarantees for the bank loans.

          And in any event, there is likely to be CGT and SDLT on transfer of the property to the company.

          Comment


            #6
            Always dangerous to assume !!_ but yes telemeter-you are right -there are mortgage loans and you raise a great point that i am embarrassed escaped me.

            -the mortgages are in my wifes name as an individual-and i suspect somewhere in the small print of the loan-they cannot be 'transferred'-albeit my wife would be a director of any limited company that we set up.

            Has anyone any specific experience of this as absolute fact

            Comment


              #7
              Always dangerous to assume !!_ but yes telometer-you are right -there are mortgage loans and you raise a great point that i am embarrassed escaped me.

              -the mortgages are in my wifes name as an individual-and i suspect somewhere in the small print of the loan-they cannot be 'transferred easily '-albeit my wife would be a director of any limited company that we set up.

              Has anyone any specific experience of this as absolute fact ?

              Comment


                #8
                Originally posted by michaelmichael View Post
                Always dangerous to assume !!_ but yes telometer-
                I made no assumptions as to why it would not work, merely that it would not work and I suggested three reasons why it would not.

                Comment


                  #9
                  If you can't manage having a tenant missing for six months, or two tenants leave at the same time then it is not the investment's legal structure that is the problem.

                  The problem is the whole investment!

                  Changing to a limited structure will only provide you with more of a burden - I'm not quite sure why you think there will be less work involved or think that you'll detach yourselves. As Telometer rightly points out, you will need personal guarantees - particularly considering the 'close to the bone' financial structure of your investment in which it is not capable of weathering the kinds of shocks you have identified.
                  I can take no responsibility for the use of any free comments given, any actions taken are the sole decision of the individual in question after consideration of my free comments.

                  That also means I cannot share in any profits from any decisions made!

                  Comment


                    #10
                    Should you decide to be a Limited Company why not set yourselves up as a Letting Agent purely for the properties under your control. Then you dont need to put the properties in the Company, someone I know has a few rental properties through a Limited Company acting as a Letting Agent and as he does a lot of decoration and repairs himself he has bought a Transit Van where ALL the running costs are met by the Limited Company as a deductable expence, Etc etc. Certainly there are advantages but before you do it sit down with your chosen accountant and work out how much they are going to charge for doing your accounts, as the cost varies from accountant to accountant.

                    Comment

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