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Martin H

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    Travel, Different Cultures, Living a life of choice.

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  1. Well yes, it it's also not an HMO, and the HMO fees are really huge in comparison. Seeking something more reasonable, or in the middle. Martin
  2. Hi Stuart, it's a 4 bed Multi Let and the mortgage offer is £1500 fees and 2.3% or so interest. HMO product is £6k of fees and 3.3% interest. They are totally different offers and not worth it at all. Mortgage amount is £330k. Hence going for a standard BTL at all costs if I can. martin
  3. Hello Property Experts! I am having trouble remortgaging a property because its Multi-Let with 4 single room contracts, rather than 1 standard AST. I tried to have an AST with the management company and I, but tis isn't accepted because they are a LTD company and it doesn't meet the lender's criteria. Has anybody found a way to do this in a compliant way. Getting all the Tenants on a standard AST is probably possible but will be messy for a few reasons e.g. they all have different start/end dates on their agreements. Any advice would be greatly appreciated! Many thanks, Martin
  4. Hello All! I am looking to purchase entire apartment buildings( 4-20 apartments) but can't see sources of these listings. Does anybody have suggestions or ideas? Many thanks Martin
  5. Hi John, I have a few BTLs and am still growing my portfolio with a purchase going on now. This will be number 4, 3 or which have been in the last two years. I am London based and still happy to invest in London when the numbers stack up. I wish to use BTL as a source of income in the immediate few years so I haven't set up a LTD company at this stage. I feel its still worthwhile and whilst less tax efficient as before there are still options. As the BTL proportion of my income increases I an either reduce my other dividend income, or set up a rental company in between. Worst case I can save up the income in the rental ltd company and after a few years go and live in Malta as a non-tax resident every 5 years and take a big pay day. Just some thoughts.... Martin
  6. I'm quite worried about what's next on the chancellor's list for targeting BTL! Investors like a stable, predictable playbing field from which to make longer term decisions. This has been cast in more doubt now and I'm rather nervous!
  7. Is the first purchase by a Ltd company exempt from these changes, or do they apply from purchase one for a ltd?
  8. I guess this means that anybody wanting to move properties from their own name into a LTD Company needs to do it before April 2016 to avoid the new SDLT changes. Or is SDLT exmpted in the case where the director is the same name as the property owner?
  9. Also there is now a 3% increase in stamp duty for BTL landlords, and those purchasing a second home( e.g. holiday home). Its not clear if this is a straight 3% tax on the property in addition to the banded Stamp Duty, or a 3% increase on each band - let's see how the change is digested for this further information. And not clear to me what this means when a BTL landlord moves home themselves - does this mean they pay and additional 3% stamp duty on their own principal private residence? Presumably this increase does not apply to Limited Companies - does anybody know? Not liking this chancellor very much! Martin
  10. I understand its a capital cost and can therefore only be offset when/if selling the property.( Keep an invoice for the charge of course). Cheers, Martin
  11. There is a way to do this - a friend is a 45% tax payer and has split the property 1% in his name and 99% in his wife's. This way they can qualify for a mortgage through his incoome, but his wife( full time mum) claims 99% of the earnings. Ask your accountant - perhaps a deed of trust is required to set this up. Cheers, Martin
  12. I'm not an accountant, however I understand that the sourcing fee is a 'capital cost' as part of aquiring the property and can only be offset once/if you sell the property. Not sure about the property books though. Cheers, Martin
  13. Hi Alessio, Many thanks for your information. I understand the changes that are proposed and thus the exploration in my question. My questions relate more around the effect of the interest rate differential between personal and Ltd Company Lending. Most analysis here that I have seen uses the same interest rates for personal vrs company comparisons, however this does not reflect the reality of the market. I’d really value people’s opinions and comments on this - please bear with me here, but let’s see how it works with some examples using a property I just purchased last week, and finance rates I was quoted: Property Cost: £415,000 Mortgage Amount 75%: £311,250 Rental income (Multi-Let): £30,000 Non-Mortgage Running Costs: £7740 *Assume that financing costs( flat £2000 for both options), legals etc are the same. *Assume a 40% rate tax payer Option 1: Finance and Taxation via Ltd Company Interest Rate: 4% Interest Costs p/a: £12,450( £311,250 X.04) Revenue p/a: £30,000 Minus Non Mortgage Costs p/a: £7740 Minus Mortgage Costs p/a: £12,450 Profit Before Tax: £9810 Tax due @ 20% = £1962 Ltd Co. Profit After Tax = £7848 (To get the money to myself, tax at 35% Personal taxation on dividends @32.5% = £2746.8 Money returned to myself at future date = £5101.20) Option 2: Finance and Taxation in own name Interest Rate: 2.89% Interest Costs: £8,995( £311,250 X.0289) Revenue: £30,000 Minus Non Mortgage Costs: £7740 Profit before Mortgage Relief: £22,260 Tax before mortgage Relief@40% = £8904 Interest Costs: £8,995 ( £311,250 X .0289) Mortgage Relief @ 20% = £1799 Total Tax due = £7,104 (£8904 - £1799) Profit after taxes = £6161 (£30,000 - £7740 - £8,995 - £7,104) Option 3: Finance and Taxation in own name – creative finance I found an option that gives 2.19% if I can finance it with an LTV @ 65%. I can however revalue and redraw the other 10% 6 months later. The interest rate is 2.19% on the 65% and 2.99% on the further 10%. Overall average interest rate is 2.197% and my calc is on the 75% finance Interest Rate: 2.197% Interest Costs: £8,995( £311,250 X.0289) Revenue: £30,000 Minus Non Mortgage Costs: £7740 Profit before Mortgage Relief: £22,260 Tax before mortgage Relief@40% = £8904 Interest Costs: £6,838 ((2.19% on 65% for 24 months and 2.99% on 10% for 18 months)/2) Mortgage Relief @ 20% = £1376.60 Total Tax due = £7,528 (£8904 - £1376.60) Profit after taxes = £7885.60 (£30,000 - £7740 - £6838 - £7,104) The outcome for me is as follows: If you can secure a low interest rate that is nearly half that of the limited company rate, its better off to hold property in one’s own name. As interest rates go up however, this gap will shorten as a company can offset the whole amount but personally you can only offset a proportion. This is clearly a risk area. If you are going to hold the company for a long time, wish to grow, and don’t need to take dividends, then growth will be faster with a limited company( assuming finance remains readily available). However at some point you will need to extract the dividends as income and pay the 32.5% tax – not sure if the growth warrants the extra taxation later. If you need the income now, then its still cheaper to hold the property in your own name than pay a higher interest rate and also dividends tax of 32.5%. This would be assuming you can keep your income below the 100k threshold to keep your personal allowance. Hybrid Option? Hold the properties in your own name to secure lower finance, but keep your income down by using a limited company as a manging agent and keep some profits there. Depending on the level you can shelter here you may stay below the 20% threshold, although this is unlikely in my case. Open questions 1. At least with holding the property in your own name you may be taxed more than a company , but its in your own name and you can do what you wish with it. If its in the company you may have more, but its still in the company and you will need to pay 32.5% tax to extract it( Assuming you’re a higher rate tax payer). 2. It would be very easy to go over £100k and probably lose your tax free threshold eg. if one had 5 such properties with taxable income of 5 X £22,260 = £113,000 returning 5 X £7885.00 = £39425 it’s a very strange calc and you wouldn’t want to lose your tax free threshold for only £39,425 of net income? This doesn’t seem right/fair and this is a gap in the government’s already poorly thought out scheme. 3. Having no dependents I haven’t considered the option of a company for IHT reasons or splitting the company income via shares to family members. This may change in time and with my personal circumstances, and thus my decision criteria may change. Conclusion It’s a little risky but for the moment think I will stay with the personal holding approach. I am ahead for a few years, and at current rates I have a deal structure that is still ahead of the company option. Of course these rates will change over time, but I am also unsure how the legislation will stick as its implemented. There are so many gaps in implementing its intention e.g. point 2. We may have a different government in that time and for me there are too many variables and open questions at this moment to move into a company structure at present. Of course I can always put future purchases into a limited umbrella if that becomes clearer. I can also investigate the Hybrid option as this gives lots of flexibility before taking the complete plunge Thanks for reading until now! Thoughts? Comments? Cheers, Martin
  14. All, Many thanks for such an excellent discussion. There is a lot of mention of decent interest rates on offer, but is everyody including also the total cost of the deal e.g. arrangement, booking and broker fees? I am about to purchase my next property and like all of you am facing this financing via personal or ltd company dilemma. For an LTV of 75% on a property of £500k I’ve been quoted a rate of 4.19% plus £1000 of costs(booking fee, broker fee,, survey etc.) which isn’t great compared to a direct loan but its stomachable. The real sting however is £5800 arrangement fee that’s added to the £380k loan. This equates to 1.5% of the loan value. The numbers for my deal still stack up, but it does make about a 2% hit to my ROI. There have been a lot of comments about how Ltd Company finance has become more competitive recently, but the difference between these financing arrangements seems too great. And initial thinking indicates that its still better to pay higher tax as an individual and have that money in my own hand tax paid, than paying higher finance costs, and having a lower profit in the company that will be taked at a lower rate but still requires further taxation to withdraw into my own pocket. I am a 40% tax payer. Even if we look to defer this income until retirement, truth be told we anticipate being in a post 20% tax bracket then anyway, and hit withtax on dividends. Perhaps for larger developments, development finance etc this would make sense, but for standard BTL I’m not sure it yet makes sense for me, at least at this stage before the new rules are 100% in place. Thougths? Many thanks, Martin
  15. Thanks for putting together the spreadsheet Rob. I hope I didn't miss it, but one suggestion is that you could also incorporate the removal of the 10% deduction of gross rental for wear and tear. Martin
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