Withdrawing re-financed debt from a property owning SPV?

by Readers Question

19:56 PM, 5th January 2017
About 2 years ago

Withdrawing re-financed debt from a property owning SPV?

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Withdrawing re-financed debt from a property owning SPV?

I am a relatively new property investor with two investment properties which are owned personally. As I am a higher rate tax payer my strategy going forward is to acquire all future properties through a corporate wrapper (English limited company SPV).ATM

My investment strategy is simple – I acquire 2 bed houses with 75% finance which are then refurbed and let to young professional tenants. A crucial part of this strategy is my ability to refinance the assets every two years or so to release cash to fund future purchases. My strategy is to buy and hold long term so am less concerned (at this stage) about dealing with sale proceeds.

I am trying to understand how I can remove the cash which could be released from a property on a re-financing without paying any tax or it being treated as a dividend. Would a inter-company loan work? I.e. SPV 1 loans SPV 2 the money released from Property 1 in order to fund the deposit for Property 2. Any advice would be much appreciated!

Many thanks,

Joe



Comments

Mark Alexander

20:25 PM, 5th January 2017
About 2 years ago

If you are using equity refinanced out of the property to fund deposits on the next property there would be no requirement to take the cash out of the company. One company is perfectly entitled to own multiple properties.

If lenders want separate SPV's then you could arrange inter-company loans.

My suggestion would be to set this up correctly from the outset.

To do this form a holding company and lend initial working capital to that.

Any SPV's required can then be subsidiary companies. You can have as many of those as you need but do bear in mind accountancy costs.

Profits after corporation tax can be transferred to the holding company and loaned to SPV ubsidiaries as required without tax complications.

When sufficient profits have been made the holding company can then begin to repay the loan capital you injected.

This strategu is also useful for property companies that have differing business models, e.g. buy to let, buy to sell/flip, refurd to hold, refurb to flip and new development.

I hope this helps.

If you need a referral to a decent accountant please see the bottom of our Tax Planning page (link top left above).
.

Ali Asgur

1:08 AM, 7th January 2017
About 2 years ago

You state "A crucial part of this strategy is my ability to refinance the assets EVERY two years or so". If so there is a new constraint you need to be aware of, namely the Mortgage Market Review and the subsequent implementation of SS13/16 on 1-Jan. It becomes considerably more difficult to extract money even if there has been a spectacular property price increase (unless that is rents too have shot up). You'll be reasonably sheltered from this upon your first remortgage because you intend to refurbish, but subsequent remortgaging to extract capital becomes difficult.

For example, say you buy a house for £160k with a loan of £122k (fee added to loan). You pay the £5.5k Stamp Duty and £25k refurbishment cost in cash and upon it entering the rental market it is worth £190k. Rent is let's say £950pcm.

Two years later the property is worth £204k and rent is £1000pcm. Based on current rules and rates you'd be able to extract roughly £30k. ((£1000x12)/145%)/5.5% = max loan.

Two years later we've settled into a post-Brexit utopia and the property is worth £245k and rent is £1100pcm. Assuming interest rates remain at record lows the most you could extract is just £15k!

Bear in mind that I am an amateur investor and my crystal ball gazing above could be wrong so I am looking forward to other opinions being posted. Also bear in mind that there is a huge demand for rental properties and it may just be the case that the punitive measures could be watered down as has recently been the case in Ireland.

Old Mrs Landlord

7:52 AM, 7th January 2017
About 2 years ago

Joe, please tell us the location of this favoured area where property prices will rise such that they can be refinanced every two years to provide sufficient funds for deposits on further purchases. My experience is that even after ten and eleven years only two of our six properties would enable this strategy.

John Constant

8:58 AM, 16th January 2017
About 2 years ago

Joe,
whilst not offering advice about the suitability of a Ltd Company to your particular circumstances, I would just like to make a point that the vast majority of lenders offering Ltd Co BTL mortgages require a floating charge which can be invoked against other assets in the company. If you're being ultra cautious, (or expecting problems!) a single property company might be beneficial.

Ali, as I have said elsewhere on this website, there are still affordable "do-able" BTL mortgages available. Contact HD Consultants, via my member profile for details.


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