Switching BTL to SPV

pavsid

BoGoF wrote: »

In Example 2 you are forgetting the Corporation Tax on the rental income. And you can't take 8k extra dividends if the net profit is only 5k say ( slightly more complicated than that I know).

You really need to run calculations based on the taxable rental profit figure.

The extra £8k would come from my company in dividends, nothing to do with the BTL or SPV.

I'm basically saying that I could give myself a pay rise, but still be in the lower tax bracket.

Maybe that's where the confusion is.

BoGoF

I see what you are saying now. My point still stands that the 8k rent received currently is not 8k taxable is it? If it's only 4k say then you can pay yourself 4k more dividends.

And you are fixating on your own personal tax position and not the overall picture. The SPV will still need to pay tax on the rental income, pay the expenses.

pavsid

BoGoF wrote: »

I see what you are saying now. My point still stands that the 8k rent received currently is not 8k taxable is it? If it's only 4k say then you can pay yourself 4k more dividends.

And you are fixating on your own personal tax position and not the overall picture. The SPV will still need to pay tax on the rental income, pay the expenses.

My point is that I currently pay the £8k rent back to the mortgage as repayment + overpayments. So I see nothing of it. The tax on the rent/profit doesn't concern me really.

Freeing up the £8k means I can do more and enjoy it more. Yes, the objective was my personal position, not necessarily with regards to tax, but with real net income "in my back pocket".

That being said, all these SPV costs and taxes are adding up, and if I added them to the SPV mortgage loan, then the total repayable in additional interest over the course of the mortgage term doesn't make it worth it. I might be better off just paying myself more dividends and taking the hit with the higher tax rate.

Ah well, was worth a try, thanks for all your help.

If i'm ever in a position to acquire another BTL, I will do it through an SPV from the beginning for sure!!!

BoGoF

Or you just sell the BTL!

What is it yielding?

pavsid

BoGoF wrote: »

Or you just sell the BTL!

What is it yielding?

6.2% gross. But as I say, I'm on repayment and make overpayments, so that one day it will boost my pension.

BoGoF

Not great tbh.....you could match that in a SIPP (meaning you would extend your basic rate band and pay yourself more divs) or S & S ISA

silvercar

6.2% gross isn't bad when there is potential for capital growth.

pavsid

BoGoF wrote: »

Not great tbh.....you could match that in a SIPP (meaning you would extend your basic rate band and pay yourself more divs) or S & S ISA

silvercar wrote: »

6.2% gross isn't bad when there is potential for capital growth.

This is maybe where I fail to understand rental yields - that 6.2% is based on yearly rental income divided by purchase price....which doesn't make much sense to me, because I didn't pay the full purchase price.

My only costs really have been the deposit and fees when purchasing, and the monthly interest on the mortgage plus maintenance etc.

So to me, a better way of looking at it would be yearly rental income, less interest and costs, divided by initial outlay on purchase (deposit + fees), which is more like 40% per year.

Correct me if i'm wrong!

BoGoF

So how much equity do you know have in the property.....must be some if you have a potential CGT liability.

pavsid

BoGoF wrote: »

So how much equity do you know have in the property.....must be some if you have a potential CGT liability.

Yeah quite a bit, based on current market value it's 55% LTV. The property has increased about 25% in value since buying it 8yrs ago.

You got other ideas?