Is now a good time to refinance and fix?

Is now a good time to refinance and fix?

6:45 AM, 1st June 2022, About 3 months ago 6

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My brother and I own 26 rental properties, all very standard houses and flats kept in good condition and let to working people. They are all what I would call “vanilla” buy to lets.

Rents and values have increased significantly since we purchased them, so currently we are sitting at just under 50% LTV and rental profits are reasonable, nothing exciting though because our average gross rental yield is just approaching 5%.

My brother suggested we sell up whilst the going is good, but I’m not so sure. He’s worried about the taxation consequences of refinancing and increases in interest rates. My thoughts are to sell the business as a whole to a new Limited Company, do the refinancing onto long term fixed rates shortly thereafter and then sit on the cash until good purchasing opportunities come along. After all, the plan for us both was to build our property rental business for retirement and we are a good 10 to 15 years away from that.

I have booked a Tax Planning consultation with Property118 and very much looking forward to seeing what they come back with. In the meantime, there may well be other Property118 Members in a similar position to ours and I would like to know what your thoughts are please?

Thanks in advance for your comments.




Mark Alexander - Founder of Property118 View Profile

7:57 AM, 1st June 2022, About 3 months ago

Hi Dan

I am not regulated to give you mortgage advice, but in principle your plan to sell the business of the rental property Partnership between you and your brother to a newly formed Limited Company, in exchange for shares, appears on face value to be a good idea. You would then be able to offset your mortgage interest against your rental income and you will only pay corporation tax on profits retained or reinvested.

Your Property118 tax consultant will complete a very thorough review and talk you through all the costs, consequences, opportunities and benefits before making any recommendations. They will also recommend that your Accountant and your mortgage broker participates in the relevant aspects of the consultation process, to ensure that any tax planning recommendations made will dovetail with your plans and their ability to help you achieve them.

You haven't mentioned family other than your brother, but if your thoughts extend beyond retirement to leaving a legacy for your loved ones your Property118 Tax Consultant will also be able to provide useful guidance on legacy planning and inheritance tax.

Please come back to us in the fullness of time to let our readers know what you thought of the Tax Planning Consultation service we provide. We have a Testimonials page dedicated to this via the link below ...

Simon Lever - Chartered Accountant helping clients get the best returns from their properties View Profile

12:21 PM, 1st June 2022, About 3 months ago

Property 118 planning is an excellent place to start. They will give you all the advice you need.
Just one point to be aware of - refinancing in a limited company could mean higher interest rates than refinancing in individual/partners own names, even with rising interest rates.
You have to "do the math" and see if the additional costs provide a better situation than keeping the properties in your own names.

The IHT side will almost certianly mean it is better to incorporate though.

Mark Alexander - Founder of Property118 View Profile

8:44 AM, 2nd June 2022, About 3 months ago

Reply to the comment left by Simon Lever at 01/06/2022 - 12:21
Hi Simon

For people with just a few standard BTL properties I would probably agree with you in regards to mortgage costs. However, interest rates for larger “portfolio landlords”, Limited Company borrowers, HMO landlords and commercial property landlords all pay very similar mortgage rates these days.

I definitely agree with you in regards to inheritance tax though. The savings possible there within a SmartCo structure can make any difference in finance costs look like a drop in the ocean.


12:28 PM, 4th June 2022, About 2 months ago

I know this is a dumb-ass question, but I am STILL struggling to understand why portfolio landlords are charged a higher rate of interest than non-portfolio ones.

I mean, my simple minded reasoning would suggest to me that a landlord with several properties is better able to withstand problems that might arise that would floor owners of just one or two properties.

This is certainly my own experience, so what gives - why do lenders want to charge me more because, from where I sit, it seems clear to me that I am a lower risk, not a higher one?

Mark Alexander - Founder of Property118 View Profile

12:56 PM, 4th June 2022, About 2 months ago

Reply to the comment left by Badger at 04/06/2022 - 12:28
I’m with you all the way on your thoughts here.

It’s not a dumb ass question at all in my opinion, it’s dumb ass pricing at best and maybe even profiteering!

Old Mrs Landlord

13:44 PM, 4th June 2022, About 2 months ago

Quite. They charge more to portfolio landlords because they can.

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