Hold your horses – Does c24 make Ltd more attractive?

Hold your horses – Does c24 make Ltd more attractive?

14:14 PM, 20th January 2016, About 7 years ago 6

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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:horses

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.



Mark Alexander - Founder of Property118 View Profile

14:20 PM, 20th January 2016, About 7 years ago

Hi John

I really think you (and your accountant) should take a look at this series of articles >>> http://www.property118.com/section-162-s162-refief-landlords/82564/

There are 5 related articles in total; so quite a lot of reading.I think it would be well worth your while though, because you have made numerous assumptions without considering all of the available opportunities and variables that exist.

John Martin

14:50 PM, 20th January 2016, About 7 years ago

I've read those articles but mine would be new purchases so no need for s162 and I still don't see the figures stacking up.

I accept that I have made a number of assumptions but my analysis was geared towards costs today and potential to recoup. Who knows what will happen to tax and ourselves tomorrow.

If costs were equal I could see the advantage, but for a small portfolio where GCT allowances and potential PRR are more meaningful I can't see a compelling case to incorporate.

I have known to be wrong before though and I am grateful towards those who attempt to educate me.

Mark Alexander - Founder of Property118 View Profile

15:06 PM, 20th January 2016, About 7 years ago

Reply to the comment left by "John Martin" at "20/01/2016 - 14:50":

Hi John

I'm the first to admit that incorporation isn't a one size fits all strategy and that's regardless of the size of portfolio.

I have a completely different strategy for example as I'm about to become an ex-pat and start selling some of my properties.

Some people who are just starting out might be better off considering a QNUPS strategy (search this website for QNUPS) but only if they are investing significant sums of money and don't need to maximise borrowing.

As always, it's a case of 'horses for courses'.

The important thing is to have considered all available options before making any firm decisions.

John Martin

10:42 AM, 21st January 2016, About 7 years ago

Reply to the comment left by "Mark Alexander" at "20/01/2016 - 15:06":

"I’m about to become an ex-pat and start selling some of my properties."

Now that is a strategy that I like the sound of!

paul smith

10:59 AM, 23rd January 2016, About 6 years ago

I thought your accountant suggested that becoming an expat in your circumstances was a bad idea?
You have said previously that paying CGT out of the sale price of your properties means you would be losing money overall on their sale, and keeping them would mean that the new tax structure imposed by Gideon/George would also mean renting at a loss, after everything is considered.
Or have I misunderstood you?

Mark Alexander - Founder of Property118 View Profile

13:06 PM, 23rd January 2016, About 6 years ago

Reply to the comment left by "paul smith" at "23/01/2016 - 10:59":

Hi Paul

I think you must have misunderstood me.

My accountant advised me that I would avoid CGT on gains made pre April 2015 by moving to Malta so that that's what I am doing. We are going over there next month to sign for a property and will then leave the UK on 20th March this year.

Our plan is to sell properties as and when our tenants decide to vacate until such time as our taxable incomes (including mortgage interest of course) fall into the lower rate tax banding.

I suspect the confusion has come about as a result of when I posted on another thread that I hoped my rental profits would be taxed in Malta as opposed to the UK. I was very quickly corrected by my accountant on that point though.

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