Process for lending money to Ltd Co for BTL purchases?

by Readers Question

13:59 PM, 1st August 2016
About 2 years ago

Process for lending money to Ltd Co for BTL purchases?

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Process for lending money to Ltd Co for BTL purchases?

My unmarried partner and I have residential and rental property. We decided to add future properties in a Ltd company to help children and minimise tax. We have roughly 25% deposit and additional stamp duty (146K) to invest in an HMO (420K, 8% return plus 10% 6 month appreciation).loan

I would like to lend the money to the company then purchase within company and eventually recoup the loan.

However there are much smarter people here, and so I would be really interested in a step by step guide to adding assets to a company. The goals here are mid to long term, but I would like to realistically add 5-10 properties in 10 years.

I am aware *ATED would be a concern for more expensive HMOs.

Finally a recommendation for lenders would be gratefully received.

All the best

Richard

*Editors note from https://www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics

ATED is an annual tax payable mainly by companies that own UK residential property valued at more than £1 million.

You’ll need to complete an ATED return if your property:

  • is a dwelling
  • is in the UK
  • was valued at more than:
    • £2 million on 1 April 2012, or at acquisition if later, for returns from 2013 to 2014 onwards
    • £1 million on 1 April 2012, or at acquisition if later, for returns from 2015 to 2016 onwards
    • £500,000 on 1 April 2012, or at acquisition if later, for returns from 2016 to 2017 onwards
  • is owned completely or partly by a:
    • company
    • partnership where one of the partners is a company
    • ­collective investment scheme – for example a unit trust or an open ended investment vehicle

A new ATED band will come into effect on 1 April 2016 for properties valued between £500,000 and £1 million. The normal filing and payment date for properties falling into this new band is 30 April 2016.

ATED returns must only be submitted on or after 1 April in any chargeable period.

There are reliefs and exemptions from the tax, which may mean you don’t have to pay.

Meaning of ‘dwelling’

Your property will be a dwelling if all or part of it is used, or could be used as a residence, for example a house or flat. It includes any gardens, grounds and buildings within them.

Find out about valuing different types of properties for example mixed use, more than one dwelling and multiple interest properties.

Some properties aren’t classed as dwellings. These include:

  • hotels
  • guest houses
  • boarding school accommodation
  • hospitals
  • student halls of residence
  • military accommodation
  • care homes
  • prisons


Comments

Mark Alexander

15:56 PM, 1st August 2016
About 2 years ago

Hi Richard

The process is very simple, any good accountant and mortgage broker will be able to talk you through it.

There are plenty of lenders, in fact, all lenders that lend to SPV companies for BTL will generally accept that the deposit into NewCo will be in the form of directors loans.

For an accountant recommendation see the Tax section on our main Navigation Bar.

There are several good mortgage brokers using this website. Again via our site navigation visit the Members page and search for any off the following:-

Howard Reuben
Mark Edwards
Adam Hosker

Howard Reuben CeMap CeRER

8:34 AM, 2nd August 2016
About 2 years ago

Thanks for the endorsement Mark

Hello Richard

There is a myth that lending to Ltd Companies is a dark art and that it is so very different from applying for a mortgage under your own personal name.

Fundamentally, it is more or less the same, i.e. the lender wants to know who you are, they want to ID and credit check you, they'll want to know about your personal, residential and occupational histories, they will ask about your income and also the source of the funds to be used for deposits, etc. All that (and a bit more of course) is just standard practice across the board.

The additional items required will be to check out the Ltd Company entity and it's financial situation and experience (if any) in the BTL or commercial sector, but this is very straightforward and easy for due diligence to be carried out.

As long established BTL and commercial finance Brokers, we are very experienced in assisting our Clients with their incorporation and then purchase or remortgage enquiries.

Click on my profile link for contact details and I hope that we can help you too.

Best regards

Howard

Paul Mullally

14:24 PM, 2nd August 2016
About 2 years ago

Can I please ask why the OP raised the concern of an ATED in relation to his situation?
If the partners are both UK residents/naturals and not living in any of the properties, then they don't qualify for any beneficial interest, so why would ATED apply?

The reason I ask is that I am about to incorporate my residential partnership (wife and I)and two of the properties are valued in excess of £500k. At no point has anyone mentioned ATED as something I should factor in regards the annual costs.

Thanks...Paul

matchmade

17:17 PM, 2nd August 2016
About 2 years ago

Perhaps the OP would advise why he thinks his company would be liable for ATED? He refers to "more expensive HMOs", but as far as I can see these would be exempt as they are "let to a third party on a commercial basis and [are]n’t, at any time, occupied (or available for occupation) by anyone connected with the owner." (See Gov website)

richard eaves

21:18 PM, 2nd August 2016
About 2 years ago

Thanks Paul Mullally and Tony Atkins

"I am aware *ATED would be a concern for more expensive HMOs"

I'm not great with the tax speak, but I was advised "Just to let you know for properties worth £500K and over your accountant needs to register you under ATED by 31st March 2016 to get a 'Property rental business exemption' or you will be liable to pay the charge."

As the property I am interested in purchasing is under 500K by 10-20%, I wanted to point out I was aware of the issue and at some point if I was to re-value and re-finance for example I would have to be registered for the exemption if the value was over 500K.

Happy to stand corrected if I am wrong.


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