What's wrong with my B2L plan?

**Maslins** · 26 June 2019, 13:05

It's hard to compare like with like, which is part of the problem.

Any rental profits inside the company will likely suffer personal tax when they come out to you. Hence typically you're delaying tax, rather than saving over the longer term. Yes you could put them into a pension like you suggest, but equally you could do that with personal funds reducing the personal tax impact of owning BTLs personally, so that's not really a differentiator IMHO.

If/when you sell properties further down the line, an individual doing it would currently suffer personal tax at 18%/28%, then that's the end of it. A company would suffer corporation tax at 19%...but then the proceeds are still in the company, so again, further personal tax when withdrawn.

I wouldn't rely on the current differential in allowability of interest being better for companies to individuals to remain indefinitely. To me it'd be a no brainer that if the govt think the change for personal BTLers worked fairly well, but pushed some to buy via a Ltd Co, the solution would be to use similar rules for Ltd Cos too. Stamp duty is typically incurred each time a property is sold, and transferring it between your Ltd Co/yourself would count. Ie buying via a Ltd Co now thinking you can transfer to personal ownership in a few years if required is potentially doubling your exposure to stamp duty.

I do accept that there are some pros to owning via a Ltd Co, but for me, the cons outweigh the pros. Where I'm investing in property now, I'm doing it personally.

**northernladuk** · 26 June 2019, 13:36

Erm. Are you sure those numbers are accurate?

**b0redom** · 26 June 2019, 17:21

Originally posted by northernladuk View Post

Erm. Are you sure those numbers are accurate?

Which particular ones?

I got the rental and purchase prices from right move (a house of each type on the same road). I got the mortgage numbers from online mortgage brokers.

They’re probably not completely accurate, but not far off.

**b0redom** · 26 June 2019, 17:23

Originally posted by Maslins View Post

It's hard to compare like with like, which is part.....

So is it possible to dump post tax rental income directly into a SIPP and reclaim the tax?

**northernladuk** · 26 June 2019, 17:30

Originally posted by b0redom View Post

Which particular ones?

I got the rental and purchase prices from right move (a house of each type on the same road). I got the mortgage numbers from online mortgage brokers.

They’re probably not completely accurate, but not far off.

Dunno. Just asking like.

**simes** · 26 June 2019, 20:36

Originally posted by b0redom View Post

Hi Folks,
Before I approach my accountant on this one I want to make sure I've not missed anything. I currently have a chunk of cash sitting around and I figure I may as well invest it, so I've been doing some sums.

Up north it appears that it's possible to buy a small(ish) house for ~ £105k, and then rent it out for £500/month.

Assuming I'm doing interest only payments, if I do this personally:

1.68% mortgage - £25k deposit - £105/month mortgage costs = £395 income but I lose ~ 40% of the gross in income tax = £195

If I buy it via company, SPV or whatever:

3.03% mortgage - £25k deposit - £189/month mortgage costs (which are deductible for companies) = £311 income

I don't need the money, so at that point I'd just funnel all of it into a pension (which would make me ~ £116 better off).

As the numbers get bigger, so does the delta between the corp and the personal mortgage income.

Am I missing something? I realise I'd get capital gains tax as a person, but not as a corporate, but I'd be mostly doing this for the monthly income as house prices where I'm looking are reasonably stagnant.

Maslins has covered the numbers but, for my recent part, this is how I have done it. LtdCo purchases.

Well actually, I have BTLs both personally and Ltd Co owned.

One doesn't know what the tax situation will be like 20 years down the line so basically, when I first started to consider Ltd Co owned BTLs, it was mainly due to the fact I had already taken in dividends, up to the 40% personal tax allowance. Now when I buy via Ltd Co, it is done because;

1. Not only can you not rely on tax knowledge 20 years down the line, quite evidently you can't rely on it 2 years down the line.
2. If my LtdCo becomes redundant through contracting, then maybe it survives because it is a BTL Portfolio company - and I change the SIC code.
3. While not investigated, there are many people who offer to buy companies so, when the time comes, maybe instead of selling individual properties, transferring to personal wealth and then closing the LtdCo, one just sells the LtdCo as a going concern. (Again, I have not investigated this last due to there being no current need.)
4. Either way, as above, I am deferring the tax liability as opposed to thinking I have saved anything.

Go for it. Good luck.

**GhostofTarbera** · 26 June 2019, 20:43

Is your accountant called Darren ?

Tell him to do your books and submit your returns. The profit for a year is a good night out, hardly worth the effort

Sent from my iPhone using Contractor UK Forum

**Lance** · 27 June 2019, 07:22

Originally posted by northernladuk View Post

Erm. Are you sure those numbers are accurate?

They don't seem right to me.
Those mortgage rates seem very low. And given BTL mortgages cost more, I'd say they are pretty optimistic.
BTL mortgages usually want 25% LTV so a larger deposit will be needed.

£105k for a house is really cheap, even in the north, and likely to be rented by scratters. Don't be surprised if ALL the profit disappears into repairs and defaults.

IMO the only BTLs to consider would be 4 bed family homes, near a train station, for professionals. The rental would be more like £800, and the cost to buy more like £250k. At least the income will be more consistent and repairs cheaper.
Or holiday cottages...

The biggest reason for the BTL boom has been capital increase. This has been somewhat slower for 10 years, and with Brexit looming large I'd be hodling the cash

And all that hassle for less than a day's rate per month. I just don't get it.

**WordIsBond** · 27 June 2019, 07:46

Originally posted by Lance View Post

Those mortgage rates seem very low. And given BTL mortgages cost more, I'd say they are pretty optimistic.
BTL mortgages usually want 25% LTV so a larger deposit will be needed.

This was an odd comment, he talked about a £25K deposit on a £105K house. So, 25% means he needs £26K....

Originally posted by Maslins View Post

Any rental profits inside the company will likely suffer personal tax when they come out to you. Hence typically you're delaying tax, rather than saving over the longer term. Yes you could put them into a pension like you suggest, but equally you could do that with personal funds reducing the personal tax impact of owning BTLs personally, so that's not really a differentiator IMHO.

This was also my first thought, which IMO means it is brilliant.

If you are happy to just dump the funds into a pension, then there's a lot to be said for doing it personally, if you have the funds or can extract them from YourCo efficiently. If you are going to have to pay higher rate dividend tax to extract the funds, that has to factor into the decision whether to do it through YourCo or personally.

Originally posted by Maslins View Post

I wouldn't rely on the current differential in allowability of interest being better for companies to individuals to remain indefinitely. To me it'd be a no brainer that if the govt think the change for personal BTLers worked fairly well, but pushed some to buy via a Ltd Co, the solution would be to use similar rules for Ltd Cos too.

Does seem likely, but.... That would be an issue for a lot of property companies, so it may not happen soon. And my guess is that they aren't going to like what happens to the rental market with their current war on landlords, so it is possible they are going to roll some of this stuff back.

Originally posted by Maslins View Post

Stamp duty is typically incurred each time a property is sold, and transferring it between your Ltd Co/yourself would count. Ie buying via a Ltd Co now thinking you can transfer to personal ownership in a few years if required is potentially doubling your exposure to stamp duty.

The property is only £105K right now. It's value may go up but so may thresholds, stamp duty probably isn't likely to be an issue, or a significant one.

What's wrong with my B2L plan?