Is Limited Company the way to go?

Is Limited Company the way to go?

15:45 PM, 26th March 2014, About 10 years ago 5

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Is Limited Company the way to go?

I’m looking for insight from fellow landlords, especially any that have already gone down a sole trader/limited co. route and if they would change anything with the benefit of hindsight.

We have full time day jobs and also have several properties in mine and my business partners personal names. We are now embarking on a development (new build apartments) that will significantly increase our rental income and we are thinking whether this development should continue with the rest of our portfolio in our personal names or sit in a newly set up limited company.

We plan to hold all our properties long term for income and only sell if the need arises. I have a meeting with my mortgage advisor so the impact of raising finance through a limited company is not included this in the discussion for now.

I know Mark Alexander does not use a limited company but having analysed the option I am leaning towards it.

Here is my thinking;

Positives For Ltd Company ownership

1. We can register for VAT and reclaim all VAT that would be charged for professional fees on the development (estimate to be at least £20k+) and then de-register for VAT once build has been completed.

2. Since the income would push both of us in to the 40% income tax bracket we could retain profits in the company (at 20% CT) rather than pay out and either reinvest or pay out over time.

3. We have family members (a wife and father) who are not working both could be added as shareholders to company so allowing double the amount of income/dividends to be paid until higher rate of tax threshold reached. They would contribute to the running of the apartments in terms of admin and maintenance.

4. As I am already at the 40% income tax threshold I would have the option of waiving my dividend (as long as sufficient distributable reserves to pay the dividends if there had been no waivers) or by reallocation of shares in suitable proportions.

5. Indexation allowance could possibly be better than CGT allowance as expecting to hold property for long period of time.

6. Shares in company could be sold to children in future at stamp duty of only 0.5%.

Negatives for Ltd Company ownership

1. No 10% wear & tear allowance
2. Higher accountancy costs
3. No CGT allowance (possibly offset by indexation allowance)
4. Extracting income from company negates the low corporation tax benefit
5. If need to extract profits from the sale of a property it would be difficult – but currently plan is to hold long term

From the above it looks like if holding the property long term for income it seems the Ltd Company is the best route.

Any feedback would be much appriciated.


Mic Singh

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Mic Singh

17:12 PM, 26th March 2014, About 10 years ago

Thanks for posting.

Just to add I have spoken to two accountants each with a good client base of landlords and own properties themselves. One thought limited co. was the best option the other thought without doubt personal ownership!

Mic Singh

20:28 PM, 26th March 2014, About 10 years ago

I found an article related to this on a tax website that mentioned something that appeared to be quite a unique concept to me;

Using a Limited Liability Partnership and having a Limited Company as one of its members. When the time comes to agree the shares of profit for each member of the LLP, after the end of its accounting period, each individual member can be allocated a sufficient share to cover his drawings from the LLP – that is, the money he takes for his own use – and the balance of the profits can then be allocated to the limited company, which will only pay tax on them at corporation tax rates – 20%, provided its share of profits is less than £300,000.

With a limited company as a member of the LLP, property ownership remains in 'personal ownership' rather than under a limited company ownership structure. And profits can be earmarked for future capital investment and allocated to the limited company member, where they suffer a lower rate of taxation and remain available to the business to fund growth.

Mark Alexander - Founder of Property118

21:43 PM, 26th March 2014, About 10 years ago

Reply to the comment left by "Mic Singh" at "26/03/2014 - 17:12":

Hi Mic

I agree with one of the accountants who has advised you LOL

My strategy is documented here >>>

Finance is a major factor but even if it wasn't I'd still always go for sole trader for long term rent and hold strategies.

The LLP model is very interesting for people who don't need mortgages or operate on a higher level, i.e. large portfolio funding via commercial lenders or private banks who are better placed to consider complex tax structures. The problem with these is the cost of borrowing because there are no economies of scale associated with bespoke structured funding facilities.

Mic Singh

9:26 AM, 27th March 2014, About 10 years ago

Thanks for the reply Mark.

Having read your strategy would you still opt for sole trader status if you could not show paper losses every year? Even with continual refinancing I think the development would produce a healthy profit which would get taxed at income tax rates.

Also I guess if I have no wife then your strategy would not work for me either.

Mark Alexander - Founder of Property118

10:38 AM, 27th March 2014, About 10 years ago

Reply to the comment left by "Mic Singh" at "27/03/2014 - 09:26":

Hi Mic

Affirmative to both of your points.

As you have already noted yourself, you may be able to pay less tax on profits retained in a limited company, HOWEVER, at some point those profits are going to be accessed by somebody, either you or your beneficiaries, and additional tax will need to be paid at that point.

I do concede that your circumstances are different to mine and you must, therefore, make different consideration. I would strongly recommend taking professional advice from a qualified and insured professional. My comments and guidance are offered in good faith but without liability as I am not insured to offer advice on such matters.

The advisers I use are a boutique firm of fully qualified accountants and experienced tax advisers who are also portfolio landlords themselves. Over the years they have saved me literally millions in tax and only charged me a fraction of what they have saved me. They specialise in advising property portfolio owners and high net worth individuals throughout the UK. I fully commend you to engage them.

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