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Hello people,

I'm looking for advice on whether I should open up a ltdc ompany. I have just had an offer accepted on a property which is why I am planning to open the Ltd company now so that I can purchase the property straight in to the company and avoid a double stamp duty by buying it in my own name, then selling it to the company once formed, which I believe the sale price must be at market value? My future plans are to expand my rental portfolio as much as possible aswell as possibly doing some flips. I also have one more property in my own name which I would like to put in the company what would be the most financially beneficial way to do this?

Any advice will be much appreciated.

Thank You

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Hi Shaun,

 

The decision on whether to purchase in a LTD or not basically comes down to your personal tax status.  I have purchased two properties in a LTD recently, and found the tax guides at Tax Cafe very useful before going down that route.  Try this https://www.taxcafe.co.uk/propertycompany.html and this https://www.taxcafe.co.uk/landlord-interest-guide.html

 

The short story is that using a company makes sense from a tax perspective if : 1)you are already a higher rate tax payer and expect to be for a the foreseeable future; 2) you intend to hold the properties for a long time (my timeframe is 10 yrs+), and; 3) you intend to extract cash from the company in future using tax-efficient methods (i.e you don't need the income now).  You need to model this out in a spreadsheet so you can see the effects with your own figures and tax calculations.

 

If you are trading property (i.e. flipping) the the tax treatment is slightly different.  If you do both it's better to have 1 investment company and 1 trading company.

 

There is one major drawback going the company route - it will cost you more to finance using a mortgage.  My 2 latest company purchases are on a 3.89% 5 yr fix, whereas I'm just buying another property in my own name (as a furnished holiday let which has different tax treatment to BTL) and have got a 5 yr fix at 1.99%.  That's a significant difference and might be enough in your situation your cancel out any tax saving by setting up the company.  You need to do a spreadsheet and work it out.

 

Oh, and I don't think you'll avoid the double stamp-duty by using the company.  I certainly didn't!

 

Can't comment on the transfer from personal name to company as I haven't done that.  I have other BTLs in my personal name but not significant enough to make it worthwhile moving into a company.  Again - a spreadsheet is the best tool.

 

Rgds, Mark.

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Mark has covered that really comprehensively.

 

We have half of our portfolio in a limited company and half in our own names and the average rate is just under 1% more. This can however had a reasonable impact on your profit.

 

The tax consideration is important. You don't get any capital gains relief as a limited company, however if you are funding the limited company you can take out money tax free with a directors loan repayment. 

 

The only other point to add is accountants fees. A self assessment can be done easily yourself, whereas for a limited company expect to pay £800+ a year for your annual return and confirmation statement. 

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Mark/Wes,

Thank you very much for your replies. Looking at and speaking to a number of sources I decided to open up a ltd company most of it based on the facts that you guys have given me above, being a higher rate taxpayer and expanding the folio to keep for a long time etc. 

 

Mark,

Ive taken a look at the taxcafe and it seems a very good source of information, thank you.

In regards to the stamp duty I meant by purchasing direct in the company I will pay the stamp duty once. If i bought the property in my name I would pay stamp duty and if sold to the company at a later date I would pay again which is what I wanted to avoid.

I do wish to both build a portfolio and flip properties depending on the circumstances and the capital I have available at the time. What are the pros of having your flips and investments in seperate companies?

 

Wes, 

Thanks for the info on the accountant fees, that was going to be my next question. I found it really hard to get a figure from accountants even when i gave them my  buisness plan and requested just a ball park figure.

 

Thanks again guys, Much appreciated.

 

Shaun

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Hi Shaun,

 

I don't have the book to hand, but I seem to recall that the tax treatment of a property trading business is different to a property investment business. 

 

As far as I am aware, property trading profits are treated solely as income for tax purposes, and the way expenses and allowances are treated is different to BTL.   For example, in a traditional BTL, if you put in an extension it can't be claimed as a maintenance expense against income.   A property investment business will also have to pay tax on income, but any gain in the value of the property is subject to capital gains tax, and the related allowances.  So if you buy, improve and sell a property any tax is calculated on the profit you make in the business, not on the capital gain.  I'd keep the two businesses separate just for ease of management.  Your accountant can advise on the benefits/drawbacks of keeping the businesses in separate companies.  

 

One further thing to think about is mortgage finance.  It has been mentioned to me that mortgage companies like to lend to BTL companies that are solely used for  investment purposes (a Special Purpose Vehicle "SPV").  If you mix property trading and property investment in the same company then you may be limit your options on mortgage finance.

 

Good luck, Mark.

 

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  • 3 weeks later...

Shaun,  with regard to your double stamp duty thing, I'm pretty sure I'm correct in saying that you're half correct...  (get advice from a solicitor).

 

When you buy in your name, you'll pay stamp duty.  But if you sell within 3 years, I'm pretty sure you can reclaim that stamp duty.

 

Then of course you'll sell to the company and pay the appropriate stamp duty there.

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