Property purchase / leasing as a Ltd company

[marklew]

Myself and a couple of friends are looking to get into property (there will be a shareholder agreement!), we are all agreed on the long game of all putting in equal amounts each year with a view to buy 1/2 properties a year as a limited company, and rent them out to cover costs/hopefully post a small profit on each unit. We are looking to keep all profits in the company and either buy more or keep them retained until our exit strategy in 15-25 years time (either draw down dividends on the now owned properties or sell or mixture of both), hence the ltd company.

I'm looking to set up a meeting with an accountant shortly, but wondered if anyone had any experience of this?

As above we are not looking for any short term return from the company, it is more of a secondary pension/income for later in life, we all have decent jobs and want to limit our tax liability whilst earning more than savings accounts on our capital.

Any better approaches anyone has implemented or traps to avoid?

Thanks

Mark

 

[UK Contractor Accountant]

The trouble with properties in a company is 'double taxation'!

The company pays corporation tax on the profits made you sell them and the Directors/shareholders pay personal tax on the profits when drawn out of the company.

If the comany is just buying property for investment purposes it will not be regarded as carrying on a trade which affects the ability to claim certain tax reliefs when you sell/wind up the company.

 

[tony84]

Shareholders can take out £5k tax free as dividends cant they?

Also I believe once you get to 10 properties (could be 15) in the limited company, you are able to claim tax relief on the interest unlike individual BTLs. If you are looking at investing large amounts it is worth sitting down with an accountant rather than getting advice off a forum, at least then it is tailored to your circumstances.

 

[UK Contractor Accountant]

Also I believe once you get to 10 properties (could be 15) in the limited company, you are able to claim tax relief on the interest unlike individual BTLs.

Ossie and his mates scrapped that proposal in his recent budget.

 

[billmccallum1957]

see http://www.taxexpert.co.uk/services...operty-ownership-through-a-limited-company-2/

Ultimately, the view is that "it depends" only individual circumstances and professional expertise can guide you.

The big issue is that nobody knows what's going to happen in 10-15-25 years time, many people jumped on to the property bandwagon in the early 2000's, only to lose a bundle in 2007-08, I lost £50k in a week.

My advice is only gamble what you can afford to lose.

 

[tony84]

Ossie and his mates scrapped that proposal in his recent budget.

Thats worrying, I was not aware it had been scrapped. I have tried finding information on it at the time and could not, so just assumed it was still correct.

 

[UK Contractor Accountant]

Thats worrying, I was not aware it had been scrapped. I have tried finding information on it at the time and could not, so just assumed it was still correct.

he scrapped the 15 properties for claiming loan interest - you can now claim on 1 property through ltd co.

 

[tony84]

So you could set up 15 ltd companies for 15 properties? I am not sure it is actually worth doing that but it could be?

 

[john1989]

So you could set up 15 ltd companies for 15 properties? I am not sure it is actually worth doing that but it could be?

Why would you want to do that?

The interest wasn't going to be allowable until a company had 15 properties held in the company. That has now been scrapped, and interest is allowable with just one property in the company.
That doesn't mean the interest is capped at one property. The interest can be relieved against multiple properties within a company.

 

[tony84]

Im lost

 

[alang23]

I suggest you ask a good accountant. With the upcoming change to tax treatment of 'dividend' payments by a Ltd Company to share holders, are there any tax advantages to you in forming a LLP and receiving income/payments from the LLP.??? Only a tax specialist can advise you.

 

[David Griffiths]

Im lost

You aren't the only one. As far as I'm concerned there has never even been a proposal that a company had to have 15 properties before it could claim loan interest as a tax relief.

There seems to be some confusion with the regulations for Stamp Duty Land Tax. There's going to be an extra 3% charged on second homes and BTLs from next month, The proposal, which to the best of my knowledge hasn't been withdrawn, is that this won't apply to limited companies with more than 15 properties. Nothing to do with interest at all

Unless somebody can provide a link that proves differently

 

[David Griffiths]

As above we are not looking for any short term return from the company, it is more of a secondary pension/income for later in life, we all have decent jobs and want to limit our tax liability whilst earning more than savings accounts on our capital.

Any better approaches anyone has implemented or traps to avoid?

Thanks

Mark

That is the key point - the long term nature of the investment.

In general, standard advice used to be to keep property out of companies, mainly because there was a double charge to tax on capital gains. What that overlooks is that the tax would only be charged if there was a disposal of a property.

In fact, it's often better to build up a portfolio in a company, because the profits will be subject only to corporation tax, currently 20% but reducing to 17%. If owned privately, the profit would be taxed at the owner's top tax rate which could easily be 20%

The "double tax" on dividends is only relevant if you have dividend income of more than £5k. Even as a higher rate taxpayer you could have a dividend of up to that amount with no additional tax. With that in mind, and bearing in mind the individual tax position of the shareholders, it could well be worth declaring a dividend of £5k each every year (profit permitting), even if you don't want to extract the cash. The dividends would then build up as directors loans to the company and those can be withdrawn with no tax consequences at any time

You are right to take advice on this, but the general proposition is sound

 

[john1989]

You aren't the only one. As far as I'm concerned there has never even been a proposal that a company had to have 15 properties before it could claim loan interest as a tax releif.

There seems to be some confusion with the regulations for Stamp Duty Land Tax. There's going to be an extra 3% charged on second homes and BTLs from next month, The proposal, which to the best of my knowledge hasn't been withdrawn, is that this won't apply to limited companies with more than 15 properties. Nothing to do with interest at all

Unless somebody can provide a link that proves differently

You're entirely correct. Not sure where I got 15 properties for interest from!

 

[marklew]

All thanks for the comments and David's below is what we are looking to achieve, and we are happy to put money in each year without generating any takeaway income for at least 10+ plus years. I appreciate that house prices can fluctuate and they can be boom and busts, but its the same for the pensions we all have. Spreading the risk by have stocks and shares and property is partially why we are doing this (as well as the fact that I believe the capital gains / rental income in the future will be much higher than we would achieve in a savings account and possibly the stock market, so I fully understand risk vs reward and we are happy with this level of investment and risk compared to our income and outgoings).

We have a meeting with a partner in a accountancy firm who also does the accounts for my Mrs business, I was just after a general feel from anyone who had done something similar or had any do's or do not's based on this strategy.

Removing the 3% 2nd home charge is interesting, but we only have one property to transfer in so far... don't think we'll have the additional 14 for another 5 or so years, so probably under a new government and rules at this point :-/

That is the key point - the long term nature of the investment.

In general, standard advice used to be to keep property out of companies, mainly because there was a double charge to tax on capital gains. What that overlooks is that the tax would only be charged if there was a disposal of a property.

In fact, it's often better to build up a portfolio in a company, because the profits will be subject only to corporation tax, currently 20% but reducing to 17%. If owned privately, the profit would be taxed at the owner's top tax rate which could easily be 20%

The "double tax" on dividends is only relevant if you have dividend income of more than £5k. Even as a higher rate taxpayer you could have a dividend of up to that amount with no additional tax. With that in mind, and bearing in mind the individual tax position of the shareholders, it could well be worth declaring a dividend of £5k each every year (profit permitting), even if you don't want to extract the cash. The dividends would then build up as directors loans to the company and those can be withdrawn with no tax consequences at any time

You are right to take advice on this, but the general proposition is sound

 

[David Griffiths]

There's going to be an extra 3% charged on second homes and BTLs from next month, The proposal, which to the best of my knowledge hasn't been withdrawn, is that this won't apply to limited companies with more than 15 properties. Nothing to do with interest at all

Unless somebody can provide a link that proves differently

Apparently the proposal to exempt companies with 15+ properties from the 3% surcharge hasn't been followed up, so everybody will have to pay it

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