BTL within a Limited Company Structure

DD4

Calling all BTL landlords!

Has anyone set up their rental business within a Limited Company structure? I'm considering adding a BTL or two to our retirement portfolio and I'm considering the following scenario/strategy:

1. Set up a limited company in my wife's name (she has a much smaller pension provision than myself) and purchase a BTL property.

2. Prior to retirement, use rental profits to pay down the mortgage and/or to build a deposit to purchase further BTLs.

3. After retirement, sell the properties and hold the money in the limited company. We will be subject to corporation tax but no capital gains. We then pay my wife a small salary from the company and large dividends upto the 40% tax bracket.

Basically, my wife could take a (say) £5k per annum salary from the company and (say) £30k in Dividend payments. Coupled with her state pension (say) £5k, she will pay zero tax on a £40k retirement income.

Are there any flaws in this plan?

dopester

Prior to retirement, use rental profits to pay down the mortgage and/or to build a deposit to purchase further BTL

DD.. it is getting ever tougher to get BTL mortgage financing, and have you checked the BTL interest rates?

Rent levels are going steeply down, and I won't even mention values. You also expect rental profits... hope you factor in all costs and the hassle of BTL.

No wonder you'd want limited liability.

clutton_2

even if you could get a BTL mortgage via your limited liability company most lenders require a personal guarantee as well - so the "limitedness" affords you no protection if the business goes belly-up

you really need expert advice on this - i can give you a good property accountants name and phone number if you want

normally he advises buying via a Ltd if you are going to trade in property - but he also needs to know the rest of your income, age and future plans before advising you

if you set it up wrongly on day one, you will pay dearly for it in the long run

DD4

I'm not concerned about limited liability, I was considering the LTD company framework for the tax advantages.

I won't consider buying until I find the right property in the right area at the right price. I doubt that I'll have a problem with obtaining a mortgage and if the worst happens, I have no problem with redirecting wealth from other parts of my investment portfolio to support the business if required.

itsjustjoe2

I have 3 properties I rent out and I would love to transfer these to a Ltd company to maxamise tax efficiencies, however you would not be able to get a standard mortgage in the name of a limited company.

A much simpler structure which I use is to set up your own property management company.

The rents are paid to this company who take a 15% cut. They (my dad) then have to chase the rent if its late. The company also charge me one months rent to find a tenant.
Any maintenance they carry out and charge for labour as well as parts + 25% markup.

What this means is over 3 properties my personal tax liability is reduced as I make less profits. The company that makes a lot of money for not really doing that much can make £10k per year tax free.

The other points to your plan... capital gains is currently 18% flate rate HMRC and have an exemption on the first £10k.
The corporation tax you pay could be higher if you make a big profit.

But why would you want to sell anyway? If once you retire the mortgages are paid off and all your rent is profit, these rents will rise with inflation, as well as capital growth for any children. They can then remortgage a few properties to buy more and could end up being extremely wealthy.


My Quest

poppysarah

Speak to an accountant if you're thinking of going down this route. They will be able to advise.

And she can only take that salary and divi if it's in the company.

chucky

good to see your posts DD, i do this and have a number of properties through a Ltd Co.

as far as Capital Gains goes a Ltd Co obviously pays less when you go to sell it..

i've done similar to what you have done where i plan to sell the properties (probably one at a time in 10-15 years time) when the housing market is better. i'll then leave the cash in the company or invest it in a more liquid investment. by doing this i can draw a salary and dividend and obviously pay less tax in retirement.i'll be doing this for my partner too - it's a kind of final salary scheme. don't forget that your all of your expenses are always tax deductible too.

an interesting point here to remember is that instead of paying into your personal pension you can have the company pay into that pension avoiding corporation tax - you then don't have to pay Income Tax or NI before you contribute to your personal pension or SIPP, downside is you don't get income tax relief which is only in your favour here if you pay 40% tax which you wouldn't be anyway. so makes sense here.

the downsides are obviously the BTL market is tough at the moment - get good properties in good areas with low costs not flats with high service charges.

another possible downside is we don't know what will happen in the future as far as tax on property is concerned.

also BTL mortgages aren't the cheapest at the moment with high fees. my view is get a balance of a mortgage with highest rate and lowest fee instead of high fee and low rate because mortgage interest is tax deductible whilst the fee is only deductible when you come to sell the property.

if you're still contracting i've another suggestion for you - PM me and i'll give you more detail.

ps. there are admin bit and peices that you have to get 100% right - the type of Ltd Co that you set up will determine if some lenders will lend to you. also a personal guarantee has never been an issue - they'd probably be requested with higher LTV's or one property LTD Co's.