LLP Mortgage

[jon crafer 0]

Hi all, were just dipping  our toes into the the BTL market, our accountant advised us to set up a separate company from our main businesses in the form of an LLP,  we have a good deposit of £75k and are looking to put that down on two properties, we decided our plan and budgets going forward, however after a meeting with our Mortgage Broker last week im a little deflated as he had never come across an LLP in BTL markets and argued the savings might be offset by the interest rates hikes, he has come back to me since then after doing a little research himself to say that the market for LLP mortgages is very small and has asked us to discuss this further with our accountants which im setting up a meeting next week,  i have googled LLP mortgages and i come up with the same two or three companies, am i missing something or is it really that small a market and are we doing the right thing with an LLP, I have a lot of faith in our accountants so im a bit torn. 

Does anyone have an opinion on all this or any advice ?

regards Jon 

[Stuart Phillips 254]

I recommend you have a chat with Simon Allen at Searchlight financial services, he is very knowledgeable in this area.

 

I think your broker simply isn't specialised in this kind of market. There are plenty of lenders who would consider this, although less than will allow a simple limited company SPV.

 

What was the reason your accountant gave for choosing the LLP route as opposed to a new limited company?

[simon allen 144]

Thanks Stuart

Jon - Stuart says why is your accountant recommending this route? They were very much flavour of the month several years ago and from my experience, I have not seen an LLP in property investment for sometime. As I only deal with investors thus the majority of my client's accountants have specialist knowledge and all I see from them are limited companies.

Turning to mortgage availability most of the limited company lenders are only available via brokers and the vast majority of those lenders will lend to an LLP .From an underwriting perspective it is no different to a limited company with just slightly different paperwork.

[Stuart Phillips 254]

I do know that there is the potential to move properties from an LLP to a limited company and gain prior consent to defer capital gains and potentially avoid stamp duty again (Ramsey vs HMRC 2013). Ive not come across anyone with an existing LLP though so haven't had an opportunity to work through one of these cases. Is your accountant thinking along these lines?

Simply starting with a limited company would seem to be the prefered advice i see from my clients accountants, i've not come across any recommendations for an LLP over the past year or two.

[jon crafer 0]

Hi Stuart/Allan, thank you for the responses, interesting inst it what a different perspective gives, and its a bit of a minefield, we use our experts to give us the best advice to try and give a clearer understanding of the correct way of doing things, its not until later down the line it is clearer that it is right or wrong or  a more complicated view. the aim is to provide a portfolio for our future and retirement and to go on for another generation, although i know a lot about houses/property I dont  know a lot  about Mortgages and Companies and the ways things are done.

 

 

Business A  trades and earns money. It pays tax on any profits.

 

Some of this money is lent to Business B as an inter-company loan (this is a loan – not income for Business B – there is no tax on this money)

 

Business B invests this money into Business C an LLP (this is an investment – not income in C – there is no tax on this money) Business B is also a non designated member of the LLP

 

The money in C can be used as a deposit.

 

The money in C can be used whenever there is sufficient funds/you can obtain a suitable mortgage for investment into the BTL market. 

[simon allen 144]

Thanks, Jon. Normally I see B buying the property so why is it C and what benefit is there? I've asked a couple of accountants I know

 

Regards Simon

[jon crafer 0]

Not sure on the specifics, we own B as we do C, C now has the wives as members also, there not involved in A or B ! sounds like Morse code ! thank you for your advice and help you've given. I find keeping things simple help !

[property118 0]

@Jon - I am very interested to understand whether you went ahead with your LLP structure and how you got on with financing?

 

@simon allen - the structure Jon has outlined enables him to use money from his trading business without him having to Pay tax to extract that money. The LLP structure also enables him to appoint other Members of his family in order to utilise their lower rate tax bands. QUESTION - can the individual Members of an LLP just buy and finance in their own names, as per an ordinary partnership. They certainly can from a legal and tax perspective, because a partnership is tax transparent and they are deemed to be holding property ‘on trust’ for the partnership. There is no such thing an an ordinary partnership mortgage’ anyway, because an ‘ordinary partnership’ in England has no separate legal status. On the basis, all owners within an ordinary partnership buy and obtain mortgages in their private names.