BLT SVP Company Structure: Non-UK Resident & UK Resident - LTD or LLP

[justin-t]

Hi All

 

First post so here goes!

 

I'm considering building up a portfolio of BTL properties over the next few years in the UK. I'm an Irish passport holder who is currently working in Saudi, so I'm a non-UK resident investor. I worked in the UK years ago. I am currently looking at 2 options - setup my own SVP LTD company and / or a JV with a UK business partner . If financially feasible, I will likely use both strategies.

 

As I am a foreign investor and my potential partner is a UK resident I'm unsure if it would adversely affect the business profitability and create issues when deciding to extract profits / sell properties from the portfolio. I currently pay no tax in the UK and my potential business partner would be in the 40% band - again unsure how this would impact on any potential partnership.

 

I'm a bit unsure of the best approach for company structuring, so thought I would seek feedback from the forum. I will of course get professional advice but I'm trying to expand my general knowledge first. 

 

Overview of my options and general queries I have:

 

Option 1: Only Myself (SVP LTD Company)

1. Target market Northern Ireland. I may also look at Scotland if property supply / obtaining finance becomes an issue. Which country is the best UK country to establish the company in? 
2. BTL properties in range of 50-90k purchase price, with 5-10k light refurb works to add value / increase rent chargeable where required - separate company for renovations beneficial?
3. Initial investment via director loan to company = GBP 60k. I may also initially need to purchase 1 or 2 cheap properties with cash to demonstrate previous BTL experience to get financing.
4. Plan to purchase 2 - 3 BTL's a year for the first 5 years. I will review after 2- 3 years and adjust my strategy if required.
5. Exit strategy - retirement pot, so I plan keep / reinvest all profits in the company. Hold onto properties longer term, potentially sell one every few years if needed or market price is good.

 

Option 2: SVP Business Partner - LTD or LLP Company Structure?

1. UK passport holder/resident and myself. My business partner may also go to work in Saudi in the future, possibly in 1-2 years.
2. Company structure - SVP for BLT mortgages- unsure if Ltd. company or LLP be best route? 
3. Target market Scotland - is Scotland the best UK country to establish the company in?
4. BTL properties in range of 40- 80k purchase price, with 5-10k light refurb works to add value / increase rent chargeable where required - separate company for renovations beneficial?
5. Initial investment via director loan to company from both parties= GBP 30k each, so GBP 60,000 in total. 
6. Plan to purchase 3-6 a year over 5 years. Re-assess strategy year 3.
7. Exit strategy: UK business partner wishes to let money sit & reinvest into the company for 2-3 years, draw director salary, get his initial director loan out of the company and potentially sell off the odd property if decent returns achievable from year 3 onwards.
8. Exit strategy: I'm unsure about which approach I will pursue, need advice as I'm unfamiliar with UK tax system and if our circumstances will impact profits / returns.

 

Hopefully the above makes sense. All feedback welcome, thanks in advance!

 

 

 

[EvolutionBlogger]

It all sounds like promising goals. You've obviously thought about this a lot. I have a few ideas

• If you're buying that number of properties, you'll want to have a limited company. It makes sense from a tax perspective. Corporation taxes are at 19% inside limited companies, compared to the 40% higher rate of tax. Also, Section 24 doesn't apply inside a limited company
• As you are a non-resident, you'll need a non resident mortgage (in both scenarios). That means higher rates and smaller choice of lenders
• If you have a high enough income, then that will probably be enough to satisfy a mortgage lender. I don't think you need to buy somewhere in cash

There is a couple of potential flaws in your plan. You are planning on buying a large number of properties, and carry out a number of refurbishments. That is a lot of work. How exactly will you do this, when you have a full time job in a different country? Looking for properties, building portfolios and carrying out refurbs is a lot of work. You will need to work with someone that can devote a lot of time to this endeavour. If one or both of you are in Saudi, then this won't be easy.

Also, where will you find these properties for £50 - 90k, that only require a £5k refurb? There's a lot of property investors in the UK. To make deals you need to do your homework, work hard and have persistence. There are good deals to be had, but you need to do your homework. You need to know your investment locations like the back of your hand, so when a deal comes up, you can quickly make an offer. You also need to visit properties twice a year (even if they're managed by a letting agent). 

Realistically, I think you need to find a knowledgeable partner that's willing to do the work on your behalf. Building a portfolio from afar is difficult, even if you are experienced in property. If you're relatively new to the market, then you take a big risk if overpaying or buying dud properties

 

[justin-t]

Hi EvolutionBlogger

Thanks for your feedback.

Yes I will be setting up a SVP (no choice if I want BLT mortgages as I'm non-UK) but it's whether a Ltd or LLP is more appropriate for the potential JV given our residency situation. I've already had discussions with potential lenders, so I have a good idea of any potential issues.

I didn't go into detail on how I was going to achieve and implement either option as I was seeking tax / company structure advice in my original post. We both work in construction and have the contacts, experience, technical & commercial construction knowledge to make it work. I wouldn't consider an area I do not know well, too much risk when starting up.

It will definitely be a challenge with me being located in Saudi. However, I have full confidence and trust in my potential business partner and his experience if we move forward in Scotland. He will be the boots on the ground till we get an established working system in place. We will have to consider our options and potentially tweak our strategy should he come back out to Saudi. If it means a slower rate of adding to our portfolio then so be it. I'd rather go slow than overstretch ourselves!

Success will be down to our finances, planning, property selection, execution/ staying within budgets for of any refurbishments, letting & management of tenants, good working / personal relationship with my business partner and various other things! I won't be taking any unnecessary risks as It's not in my nature.

Do you have any feedback on whether a LLP would be a better company structure or any idea about tax implications for UK / Non-UK JV within a Ltd company or an LLP?

Thanks again for taking the time to respond, appreciated.

 

 

 

 

 

 

[justin-t]

Hi EvolutionBlogger

Thanks for your feedback.

Yes I will be setting up a SVP (no choice if I want BLT mortgages as I'm non-UK) but it's whether a Ltd or LLP is more appropriate for the potential JV given our residency situation. I've already had discussions with potential lenders, so I have a good idea of any potential issues.

I didn't go into detail on how I was going to achieve and implement either option as I was seeking tax / company structure advice in my original post. We both work in construction and have the contacts, experience, technical & commercial construction knowledge to make it work. I wouldn't consider an area I do not know well, too much risk when starting up.

It will definitely be a challenge with me being located in Saudi. However, I have full confidence and trust in my potential business partner and his experience if we move forward in Scotland. He will be the boots on the ground till we get an established working system in place. We will have to consider our options and potentially tweak our strategy should he come back out to Saudi. If it means a slower rate of adding to our portfolio then so be it. I'd rather go slow than overstretch ourselves!

Success will be down to our finances, planning, property selection, execution/ staying within budgets for of any refurbishments, letting & management of tenants, good working / personal relationship with my business partner and various other things! I won't be taking any unnecessary risks as It's not in my nature.

Do you have any feedback on whether a LLP would be a better company structure or any idea about tax implications for UK / Non-UK JV within a Ltd company or an LLP?

Thanks again for taking the time to respond, appreciated.

[EvolutionBlogger]

A Ltd company is a separate entity. It's taxes are not dependent on where the shareholders are located

The personal tax you pay will be dependent on whether you are a UK resident or not, which you probably won't be. So you'll pay UK taxes on your UK earnings. 

I'm not an expert on LLPs, so I can't advise on that area 

 

 

 

 

[justin-t]

Okay, thanks for the useful information. 

[david slater]

4 hours ago, Justin-T said:

Do you have any feedback on whether a LLP would be a better company structure or any idea about tax implications for UK / Non-UK JV within a Ltd company or an LLP?

LLPs are transparent from a tax perspective which means that the partners get taxed at their marginal rate. This will probably work out well for you but not so well for your partner who will pay higher rate tax. 

Limited company's pay corporation tax at 19% but then you may pay personal tax if you look to extract profits. If you were looking to reinvest profits and didn't need to access them to live off then a company might be a good option.

[justin-t]

On 2/17/2021 at 2:04 PM, david slater said:

LLPs are transparent from a tax perspective which means that the partners get taxed at their marginal rate. This will probably work out well for you but not so well for your partner who will pay higher rate tax. 

Limited company's pay corporation tax at 19% but then you may pay personal tax if you look to extract profits. If you were looking to reinvest profits and didn't need to access them to live off then a company might be a good option.

From the information I've read and your feedback on the LLP, it may not be to the benefit of both parties given our circumstances. There is an overload of information, at times  contradictory on LLP v Ltd. but a limited company would seem to the best fit for our particular JV. Thanks for your feedback.