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Marc

Transfer to Ltd Company or not?

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Hi, looking for some advice as i cant quite seem to get my head round the best thing to do, so here is my quandary:-

I own 6 x BTL property, all with personal BTL mortgages on, all in mine and my brothers name. My accountant is telling me that i should start to move these properties across to a Ltd company. At a high level this makes perfect sense as we limit our tax liability as we are both higher rate tax payers, but here is my scenario and to use one of the 6 properties as an example:-

NB: all figures have been rounded for ease.

Current property value is c. £160K, mortgage balance is £77K, current interest only mortgage payments are £149 pcm, service charge is £75 pcm,  incoming rent is £795 -  profit is £6.8K per annum

Assuming no other expense/income, me and my brother will pay c.40% tax on the full £6.8K next year = £2.7K, so we retain £4.1K as cash in the bank

If i sell/transfer to the Ltd company at £160K (to release the equity) at 75% LTV this would release c £44K for me to reinvest which is great, but.....

I would then be hit with a £8K SDLT, so my £44K becomes £36K, my mortgage payment would go up to c £325 pcm (working on 3.19% interest only Ltd company BTL) - this would increase my outgoings on the property by £2,112 per annum, so my annual profits decrease from £6.8K to £4,688 per annum.

I then pay 20% corporation tax on the £4.68K, leaves me with £3.7K.

So, in my head, by moving to a ltd company, i will be c. £400 worse off (the difference between £4.1K and £3.7K above) every year and would have had to pay £8K SDLT, plus conveyancing, solicitors and mortgage brokers etc - this doesn't make good financial sense does it? 

Although, i also accept i would have £36K to reinvest..... but all that being said, why would i not remortgage in our personal names again at £160K, release the £44K, increase my mortgage from £77K to £120K, but with the mortgage rates on offer right now, actually not increase my current monthly mortgage payment. Surely this is the way to go....?

What am i missing....?

Would really appreciate some thoughts, friendly advice from the guys on the forum.

Many Thanks

MB

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With the number of properties you have, maybe your Accountant can consider "S162 Incorporation Relief "? I think its mainly for CGT but can lower SDLT if say you and your brother were first a "partnership". Though its intricacies a discussion to have with your accountant.

In addition, as I understand it, as you "loaned" the company the "equity" you (and brother) can get the company to repay that loan. Which is treated as an allowable deduction from profit - lowering corporation tax for a few years to come. Though have that discussion with your accountant.

You are on the right track with the spreadsheet working out which way is best for you. Though you should be comparing like-for-like remortgages not lower LTV in personal name and higher LTV in the company.

I know some landlords that dont go all-in with a limited company. Their advice from the accountant is to have a bit of both, 

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if you are a 40% tax payer then you are missing a lot

also if you have the properties in joint names before transsferring you may be able to avaoid the cap gains tax..

General view seems to be keep existing in own name but buy new in Ltd.

Its a very complicated to be honest and also very specific to individual circumstances

there are ways to minimise tax in ltd company noit available to an individual so you are not comparing like with like

 

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Hi Marc,

Just something to note in your calculations, you wouldn't be taxed on 6.8K as you have deducted your interest from your rental income. Part of the section 24 changes mean that in 20/21 you wont be able to take any interest from your rental income and in 19/20 if my calculations are right you would only be able to take off £447 from the rental income and would be taxed on the rest. 

Therefore in 20/21 minus your service charge costs your tax bill would be £3456 leaving you with £3,396 in the bank.

As haf1963 said though there are so many other things to consider before moving into a LTD Company structure. 

 

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