BTL Personal vs Ltd Company – Which way to jump?

BTL Personal vs Ltd Company – Which way to jump?

16:18 PM, 7th December 2020, About 4 years ago 20

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Hello, I have a question re Section 24 BTL on personal vs Ltd Co. Having been a landlord for nearly 10 years now, I understand the practical tax issues that come with section 24 changes and I completely agree with Mark & Mark’s smart company structure in the long term. This would also imply that any future BTL investments (buy to rent and hold rather than development) be made in a LTD company.

However, facing a situation at the moment, I am wondering if it’s always advantageous to go Ltd co route. If I am buying a say £400k property at 75% LTV, implying a £300k mortgage. BTL co rate would be approximately 4% pa but personal BTL rate would be 2% and be about £2k cheaper to secure the mortgage.

Taking into account even the highest rate band mortgage relief “lost” under s24 would still mean that the personal mortgage is far cheaper.

I get that going the Ltd co route also opens up other benefits such as CGT and IHT planning but if a landlord has a relatively small portfolio of <10 properties, is already a highest rate taxpayer and mortgage rates are super cheap, there must be a tipping point where the Ltd co is not always the best answer. If I were to purchase in a personal name, then what stops us going down the Mark @ Cotswold strategy down the track when the mortgage rates are more favourable (or the properties are mortgage-free) of switching into a Ltd co?

Am I missing something in my maths in the example presented?

Unglamorous Landlord

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Comments

paul thomason

9:15 AM, 12th December 2020, About 4 years ago

Thanks but my question was about interest on loans to ltd company’s if I loan to ltd company’s I presume my wife can’t receive 5000 as it’s not loaned by her as she is not a director off that ltd company . Would be interested to talk to you by phone

paul thomason

9:18 AM, 12th December 2020, About 4 years ago

Thanks but my question was about interest on loans to ltd company’s if I loan to ltd company’s I presume my wife can’t receive 5000 as it’s not loaned by her as she is not a director off that ltd company . Would be interested to talk to you by phone

paul thomason

9:18 AM, 12th December 2020, About 4 years ago

Thanks but my question was about interest on loans to ltd company’s if I loan to ltd company’s I presume my wife can’t receive 5000 as it’s not loaned by her as she is not a director off that ltd company . Would be interested to talk to you by phone

Mark Alexander - Founder of Property118

9:21 AM, 12th December 2020, About 4 years ago

Reply to the comment left by paul thomason at 12/12/2020 - 09:18
It is not possible to charge interest on a loan which does not exist.

To book a tax consultation, please see the link below.

https://www.property118.com/tax/book-a-consultation/

Tim Jones

22:58 PM, 12th December 2020, About 4 years ago

Reply to the comment left by Darren Peters at 08/12/2020 - 12:17
Hi Darren

Your last comment - You are a lender to your company and can then charge your company interest on the £50K. Interest is treated differently to salaried income

I tentatively explored this with my accountant but as it increased my income ( I’m a higher rate tax payer ) we concluded to lend it Interest free ( which is ok ish but I’d prefer to extract more from the company ( obviously I can take out capital )

Also what rate is acceptable to HMRC if this is a route - 5% over base rate ?

Tim Jones

14:35 PM, 15th December 2020, About 4 years ago

Reply to the comment left by Mark Alexander at 08/12/2020 - 12:22
are you able to clarify this ( with a HMRC link ) - would the £18,500 have to be declared as income - so for higher rate tax payers get taxed accordingly

Therefore, if you had a Directors’ loan account with a balance of £185,000 an annual interest rate of 10% should be acceptable with HMRC allowing you to receive £18,500 of interest income entirely tax free. This would be an allowable expense to your company saving corporation tax at 19% and you would also be able to receive it personally without any tax.

Mark Alexander - Founder of Property118

14:39 PM, 15th December 2020, About 4 years ago

Reply to the comment left by Tim Jones at 15/12/2020 - 14:35
Income tax would have to be paid at the marginal rate on the interest received. In the example given the marginal rate of tax is £nil

The interest is an expense of the company, so exposure to corporation tax would reduce correspondingly.

Darren Peters

14:55 PM, 15th December 2020, About 4 years ago

Reply to the comment left by Tim Jones at 12/12/2020 - 22:58
I can't answer specifically but if you charged X% interest I don't think you have to collect the interest annually. You could decide to roll up and collect in a bad year when it's more tax efficient to do so.

Presumably you don't collect a dividend? It may be that taking interest is more efficient than taking the dividend but I don't know how that works at the higher rate.

As for the correct interest rate. I actually asked my accountant this very question. He said that nothing is stated by HMRC but it would be prudent to have something that you can argue is a genuine commercial rate. Ie money lent to the company to do something risky and unsecured could justify a higher rate than parking the money in the company bank account.

However I am no advisor, check with your own experts.

Tim Jones

16:36 PM, 15th December 2020, About 4 years ago

Reply to the comment left by Darren Peters at 15/12/2020 - 14:55
Thanks -

Im not really concerned about the rate 5% is fine ( im only paying 1.4% personally ) - im also not concerned about the company ( good year / bad year ) my concern is if i have to declare it to HMRC - at the rate stated above I would be due £40K per year which is highly significant for me, currently i dont claim it as my accountant said id have to pay tax on it, if there is a HMRC link to clarify this that would make my day

Mark Alexander - Founder of Property118

10:17 AM, 16th December 2020, About 4 years ago

Reply to the comment left by Tim Jones at 15/12/2020 - 16:36
Hi Tim

I think your accountant is right.

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