Better to purchase BTL as a company or individual?

Johnsmith011995

I started a job a year ago with 30k salary. I do not own a house as I live in london and prices are extremely high so I cannot afford. I would however like to buy a house for myself some point in the future.

The deposit I have saved up I am planning to use as investments to purchase buy to let properties outside of London but I have very little knowledge so trying to build that up to avoid as many risks as possible so wanted to clarify the following questions;

1. Should I purchase as a Ltd or own name. I am planning to purchase multiple BTLs but one to start of with.
2. Would I remain a first time buyer when I come to purchase a residential property for myself, if I buy BTLs as a business. I understand that won't be the case if I purchase in my name.

ACG

You need to speak to a tax advisor.

Rates are generally more on Ltd Co BTLs, but the flip side is how you get paid. Nobody on here can answer the question as it will depend on so many different factors that are far too complicated for a forum.

anselld

There are massively bigger risks in your proposed plan than the tax position (tail wagging the dog springs to mind), however to answer the specific questions

(1) There is not a big tax advantage to Ltd but the situation where it is most beneficial is re-investing to build a portfolio in the long term. So if you can overcome the difficulties of accessing finance as a newly formed Ltd I would say this is the way to go.

(2) Ltd is a separate entity, so yes you remain a FTB personally. However you will pay SDLT 3% surcharge on every residential purchase within the Ltd, including the first one.

Read "Using a property Company To Save Tax" by Carl Bayley
(Make sure you get the March 2018 version)

Johnsmith011995

What kind of risks do you mean? I will also read the book mentioned to get a better understanding. I want to make informed decisions I have about 100k to invest and over a span of 1 year would like to purchase 3-5 BTLs depending on price and deposit required. I am in search for a good and cheap areas for now.

Hippo

How are you planning on getting a mortgage considering you don't own a property?

Thrugelmir

Johnsmith011995 wrote: »

I want to make informed decisions I have about 100k to invest and over a span of 1 year would like to purchase 3-5 BTLs depending on price and deposit required.

Sounds as if you need to draw up a business plan. Lenders may require some convincing that you your plans are viable.

ACG

anselld wrote: »

So if you can overcome the difficulties of accessing finance as a newly formed Ltd I would say this is the way to go.

It is not really any more difficult to get a Mortgage as a limited company than it is as an individual.

Lenders actually insist on the limited company being a newly formed company as an SPV.

I think it is probably worth speaking to a Mortgage broker and a tax advisor.

anselld

Johnsmith011995 wrote: »

What kind of risks do you mean?

Buying a property which is difficult to let or doesn't command the rent you need.

Getting tenants that don't pay / wreck the place / do a runner / wont leave, etc.

Having the place turned into a drug factory or a brothel.

Having difficult neighbours.

Getting on the wrong side of one of the numerous legal requirements which can incur loss/fines/prison depending how serious.

Drop in property value.

Expensive unforeseen repairs.

etc, etc.

Crashy_Time

https://www.property118.com/section-24-forced/92078/

shirlgirl2004

By 2020 any rental monies earned will be taken as income without expenses deductions so it may well push you into the 40% tax bracket. The first BTL property could be safely purchased personally but obviously you'll then pay the extra 3% SDLT on your personal home when you buy it. However if you buy in a LTD co then you pay the extra 3% SDLT too on all BTL. I'm guessing your personal home might be more expensive than your BTL so the SDLT would be less.

Really you do need personal tax advice ideally with an adviser that understands BTL and looks to where you are going not just where you are now.

buggy_boy

BTL is a risk, generally speaking the higher the yield the more risk...

I think before people start saying its not a good idea we really need to understand what sort of deposit you will have, what is the sort of value of the property you want to buy and what sort of rent will it get...

You will need at least 25% deposit, even at 25% deposit after expenses and changes in taxation this may not be enough, at the moment cash is king.

I am going to make some sweeping assumptions here but its common one, you are looking at up north properties that can be bought for around 80-100k, with rent of around £600 pcm. with a 25% deposit, you will be limited in BTL mortgages you can get because you have no experience and do not own your own home so you will be paying circa 4%, plus £1000 product fee every few years... On £75k mortgage thats interest and fees of of £3500 (plus 20% of that taxed by 2020(£700)) as you are not local and have no experience you will probably need an agent, they will charge around 15%, add insurance, gas safety certificate and general maintenance of say £1500 pcm, add in voids of 1 month a year (you will have to pay council tax and utilities in this time and your rent of £7200 you will have just over £400 per year loss and thats optimistic.

Remember at that sort of end of the market the likelyhood of tenants not paying or damaging the property is high. By the time you have paid the purchase costs it just does not work.

I don't mean to be rude but £30k a year in London is not much, unless you are in London because of family I would recommend getting out of London and buying your own home. The days of average joe's getting massive portfolios relying on increase in property prices re gone, it was a risk and some have made a lot of money but those that have tried it recently will be in trouble by 2020.