Does buying BTL through a limited company make more sense for me?

by Readers Question

11:19 AM, 31st January 2015
About 4 years ago

Does buying BTL through a limited company make more sense for me?

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Does buying BTL through a limited company make more sense for me?

For my main job (nothing to do with property) I work through my own limited company, taking around £8k in wages per year and £30k in dividends. This is just enough to keep me out of the higher tax bracket. Over a few years this has left me with enough money sitting in my company’s bank account to fund a 25-30% deposit for a BTL (purchase price around £110k-120k). Does buying BTL through a limited company make more sense for me

I will, however, lose 25% of this deposit to income tax if I just take the money out of my company for myself, with a view to getting a regular high-street BTL mortgage. Therefore I wondered if in this case it would make more sense to buy the BTL through my limited company? I’ve never had a business loan or mortgage before so am a bit green as to the logistics.

Could I then sell the house back to myself using a high-street BTL mortgage, in say 6-12 months time, before it attracts too much CGT (for which I believe there is no relief for limited companies)? Or would that be seen as some sort of tax dodge by the tax man? Would high-street lenders be happy with this arrangement? Would it be worth all the hassle?

Additionally, if I wanted to improve the property in a way which will make it worth more, e.g. add a loft extension, would it be more beneficial to do the works when my company owns it or when I own it, in regards to the CGT I’d be liable for when I finally sell it? (5-10 years time at least.)

BTW I am not married and have no children to share any CGT relief with.

Thanks!

Conor



Comments

Mark Alexander

11:29 AM, 31st January 2015
About 4 years ago

Hi Conor

To answer your primary question, it is highly improbable that you will be able to buy the property in your trading company, let alone advantageous. This is because there are very few BTL mortgage lenders that will lend to trading companies which are not Spevial Purpose Vehicles for property investment "SPV's". If you do manage to structure something and find a lender then it is highly likely that you will pay a lot more for the funding. There may be a complicated structure whereby your trading company forms a wholly owned SPV subsidiary but based on the numbers you are considering this is highly unlikely to prove economical.

I could go on to address your other points (which I would also not recommend to you for a variety of reasons) but in view of the above I think this would be pointless at this stage.

Do you have any directors loans in the company, i.e. a positive directors loan account? If so, for example money you loaned to the business at the point of start up, then you may be able to repay those loans to yourself tax free.

I suggest you talk to your accountants, however, if they start to recommend complex company structures to achieve your requirements please bear in mind the points I've made above and be suspicious of their motives for doing so, e.g. opportunities to rack up fees.

Good luck.
.

Nitin Aggarwal

11:52 AM, 2nd February 2015
About 4 years ago

I am in a similar boat and wanted to do the same but was given similar advice by my account as Mark and I utilise director loan strategy in the short term...

but longer term i need to find a way to use the money accumulated in the company to be able to do this in a tax efficient way.

Alan Bromley

12:06 PM, 2nd February 2015
About 4 years ago

I'm not an expert on this but commercial property can be much more lucrative. You would get a commercial mortgage on a leashold office provided it's for your business, and you would rent it back to yourself at an above-market rate, enabling you to take money out of the company while saving on corporation tax.

You can latger transfer the property to your SIPP, with or without a mortgage. Rent going into the SIPP is tax free, building your pot potentially more quickly than investing your pension fund the usual way. The SIPP can even buy it from you if you have enough funds, freeing up part of your pension to buy a residential property.

I'll wait to be shouted down on this one, but the above is basically what I have done.

Jason Holden

12:43 PM, 7th February 2015
About 4 years ago

Actually Alan you are on the right track. Commercial property as a rule tends to be less volatile than residential but capital growth can also be less, but then again this all depends on where in the country you are and what the economy is doing.

So many people overlook commercial property in favour of residential but when your talking about someone who runs their own company this can often be a good approach.

Simple example is company makes payment into your 'SIPP' gets a tax deduction and then the 'SIPP' uses this money as a deposit, there are lending criterka, such as borrowing uptk 50% of the pension pot value.

This is not advice just something the Connor could consider before taking professional advice from his accountant/tax adviser.

Jason

David Atkins

9:44 AM, 20th December 2015
About 3 years ago

Hello Mark
I've just registered a company in order to purchase my next BTL HMO in the company. When I registered it I'm sure I selected property but on CH it states:

Nature of business (SIC)
To be provided on next annual return.

When I submit the annual return do I select property as the main type of business or is there a category called SPV?

Does the type of company affect the availability of lenders to my limited company? I would have thought that Conor would have more lenders, being an up and running company with history, than a newbie company.

Kind regards

David

Dixie Dean

22:05 PM, 20th December 2015
About 3 years ago

Hi Conor,

I'm in a similar boat. Advice I've had is:

1. Set up new limited company (SPV to hold property)
2. Loan new company money from old company = no income tax / tax deducted

Would be worth speaking to your accountant.

Dixie

Mark Alexander

16:36 PM, 21st December 2015
About 3 years ago

Reply to the comment left by "David Atkins" at "20/12/2015 - 09:44":

I agree with Dixie, best to take advice from your accountant.
.

Geoff Cockayne

16:20 PM, 10th February 2016
About 3 years ago

Reply to the comment left by "David Atkins" at "20/12/2015 - 09:44":

Hi David,

Are you a freeholder along with a Christopher Atkins?

Kind regards

Geoff


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