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Is this a good time to build a portfolio


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Hi, new here looking for advice on whether to build a portfolio. 

I suppose I would fall into the accidental landlord category, at the moment I have 2 properties mortgage free that would leave me with roughly 200k after tax etc. 

I'm thinking of selling them, setting up a limited company and going down the 25% deposit interest only route. 

My day job puts me in 40% tax so think the limited company is the best way to go. 

I know nobody knows what's going to happen with Russia but wondering if I should hang fire for a few months.

 

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Hi Chris. I think a limited company is a great idea, but I don't think you should sell your existing properties. You would need to pay capital gains tax when you sell the property (28% of an capital gains). You then need to pay stamp duty when you buy the properties inside your limited company

It might be better to transfer your properties into a limited company. Under certain circumstances, you can transfer properties to a limited company without paying tax. This is discussed in this article

You might want to read this article too. It talks about the benefits of using a limited company for property

In my view, there's no such thing as a perfect time! You can always find a reason not to invest. In the 15 years I've been in property, we had the great recession, The Greek Eurozone crisis, Brexit, a Pandemic and now a Russian war. In that time, the price of properties has risen hugely! 

As you already have two properties, I think you're in a great situation

 



 

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

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As mentioned above it always seems like something is happening that could affect the property market. Eventually something will but you can’t know when. My strategy is to keep growing but in a way that my assets are as safe as possible should there be a crash

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Hi, I was considering selling the properties because every mortgage broker I've seen so far has tried to steer me in that direction. They have all said it would be too much hassle to transfer them over to the limited company. I'm seeing am accountant tomorrow who may be more help. 

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12 hours ago, chris316 said:

Hi, I was considering selling the properties because every mortgage broker I've seen so far has tried to steer me in that direction. They have all said it would be too much hassle to transfer them over to the limited company. I'm seeing am accountant tomorrow who may be more help. 

I don't agree with that. It sounds like they're trying to make business for themselves when you need a new mortgage

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

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  • 2 weeks later...
On 3/10/2022 at 1:40 AM, chris316 said:

Hi, I was considering selling the properties because every mortgage broker I've seen so far has tried to steer me in that direction. They have all said it would be too much hassle to transfer them over to the limited company. I'm seeing am accountant tomorrow who may be more help. 

Its not because the brokers cant be doing with the hassle, in fact the opposite, it would be a huge opportunity because of the volume of mortgages processed and probably some good kick back on any lawyer referal. The issue is that the HMRC challenged this loophole, and whilst they lost in the case of Ramsey, their situation was different to most investors. The catch is:

HMRC has historically challenged whether incorporation relief applies to rental business transfers. However, a 2013 case (Ramsay v HMRC [2013] UKUT 226), which HMRC lost, has helped to establish tests which, according to HMRC, a landlord would need to pass so that incorporation relief could be claimed:

  • The management of the properties must amount to a ‘business’. This is considered to mean that the owners must typically spend at least 20 hours per week actively managing the property portfolio and, usually, have no other occupation or significant income.
  • The property business should be run to make a profit with normal commercial practices in place, for example a tenant management system and business bank account.

Claiming incorporation relief is only possible when the entire business (portfolio of properties) is incorporated. It isn’t possible to transfer individual properties to a company and claim incorporation relief.

So, selling (Its a transaction between seperate entities) a property to a limited company only avoids CGT if its your primary job and you can demonstrate that you put 20 hrs a week into it. How are you going to prove that? If you have a job, it wont work, if you use an agency to manage a property, it wont work, the list goes on. I have explored this for dozens of clients, with dozens of accountants and lawyers all confirming the same. Unless your entire business is managing your portfolio effectively full time and you can demonstrate it, this will be an expensive, slow process with little guarantee of success.

Thats why brokers dont recommend it.

043_logo_final_03.png.0cdf828351f81e6097208048ac2d018d.pngStuart Phillips

Independent, Whole of Market Mortgage Broker & BTL Specialist

AALTO Mortgages Ltd

Web  www.aaltomortgages.com

Email  sales@aaltomortgages.com

Call  020 7183 1101

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