14:14 PM, 20th January 2016, About 6 years ago 6
I’ve been running some sums myself with reference to my future purchases in the BTL arena background here: http://www.property118.com/conflicting-advice-pay-debt-not/83469 I was of the opinion that a Ltd was now clearly the beneficial path in light of c24 holding up to review. Then I built a spread sheet:
Value Loan Equity
M1 £185,000 £135,000 £50,000
M2 £185,000 £135,000 £50,000
£370,000 £270,000 £100,000
Personal Ltd Company
Stamp Duty (1) £2,400 £2,400
Mortgage Fees (2) £3,980 £11,100
Interest Rate (3) 2.19% 3.93%
Monthly Payment £492 £884
Annual Payment £5,904 £10,608
Rent Monthly £1,840 £1,840
Rent Annual £22,080 £22,080
Annual Costs £4,000 £4,000
2020 c24 tax increase £1,181 £0
(1) Less than £500k, LTD currently below 15% SDLT
(2) Assume £1990 vs 3%
(3) Representative for illustration purposes
As one builds a portfolio I can see increased merits for a LTD but if one has only modest aspirations then I don’t see the figures stacking up. If c24 is the primary motivation then one incurs a significantly higher interest rate and fees upfront that will take years to recoup.
At this juncture I drew a line under this exercise. I am aware that I have not included costs such as conveyancing, company filings etc but these are not material. I am also aware that there are pro/cons to on going tax considerations (Corporation Tax, CGT, Dividends etc.) and there is something called the Annual Tax on Enveloped Dwellings (ATED) that I have not investigated further because a) my holding would be below the threshold (currently!) and b) I don’t view Ltd as attractive.
Finally, I am aware that the 3% SDLT surcharge on second homes will impact Ltds differently depending upon the number of properties held. With the Chancellor clearly demonstrating that he is not treating all Ltds the same I attach some risk to a variation of c24 moving into the Ltd space.
I used these figures to try and illustrate a point to myself and potentially others than while c24 is detrimental for smaller landlords it may not be a game changer that I for one thought it was with regard structure. Unless of course, I have missed the obvious?
So there you go. This is a complicated area, my analysis is simple, and I am not seeking or providing individual advice. My workings were to educate myself so that I could have a more meaningful conversation with my accountant.
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