Buy a refurb/flip property privately or through Ltd company?

eccles291

Hi there,

Hopefully someone can help with a few pointers regarding our potential house purchase situation.

We currently live in rented accommodation, but also own a house that we've rented out on a BTL for around 20 years. My wife bought the house on her own before we met but once we got together I moved in and we lived there together for a couple of years. When we moved away from that area we decided to keep the house and rent it out. As part of the most recent BTL remortgage we included my name on the mortgage, which in previous years it wasn't. If I wasn't on the current mortgage I wonder if buying a refurb house privately in my name only may get around the problem of it being classed as a second home, but I'm unsure of the legality of this. If it IS legal, could we remortgage our BTL solely in my wife's name but still include my earnings to meet the affordability criteria?

We are moving to north east England in the coming months and are looking to purchase a house in need of refurbishment in order to flip it. Ultimately we want to buy our own home in which to live, rather than continue to rent, and we realise that we can't live in a house our Ltd company owns. Flipping a few properties over time will hopefully allow us to buy our own home. My question is, should we buy a house to flip via a Ltd company, or privately? I know buying privately will incur a stamp duty levy as it's classed as a second home, but will buying it through a Ltd company avoid this? (Incidentally, we won't ever return to the BTL property we have as the area is not where we want to live.) Also, which option would be a better way of minimizing our tax liability - private or Ltd company?

In time we're looking to make the transition into property renovations our full-time occupation but that will obviously take some time and necessitate a few projects before we can make the change from our current jobs.

I hope this all makes sense. Thanks. 🙂

silvercar

A married couple can only own one private principal residence between them, so any idea of having one in each of your names won’t reduce any tax bill or make you eligible for a lower rate of SDLT.

BTL mortgage affordability considers potential rental income, this can sometimes be supplemented by excess personal income, but the basis of the calculation is the rental income. Interesting that you managed to remortgage your rental property without owning your own home, as lenders are usually reluctant to do this, for fear that you intend living there and are only going the BTL route to obtain a mortgage that your income wouldn’t justify.

As for buying a property to flip, if you bought it and moved in prior to updating it, then you wouldn’t be hit with the higher rate of SDLT. You would still be hit with the higher SDLT as you will be increasing the number of properties you own. Same for buying in a limited company, the higher rate is still payable.

Buying in a LTD company can make a mortgage more expensive, it also makes it harder to get money out of the company. You would need to do that via employing yourself and dividends. The advantage is the treatment of mortgage interest, as it is considered an expense of the company, rather than being restricted to basic rate if you bought individually. You also have to prepare accounts/ set up the company/ complete a tax return for it etc. It’s a lot of effort and some costs for just one company. If you aren’t a higher rate tax payer, I can’t see the value at all.

sheramber

https://forums.moneysavingexpert.com/discussion/comment/81941895#Comment_81941895

The OP will not be disposing of his main residence ( he is renting) so will own two properties and be liable for additional stamp duty on the purchase of the new property.

ChirpyChicken

Where in the north east

There is a ceiling on property prices in ex colliery areas which covers a large area of the north east.

Don't be fooled by the lower prices

silvercar

https://forums.moneysavingexpert.com/discussion/comment/81942061#Comment_81942061

thanks. Corrected my post.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81942116#Comment_81942116

Yes, low price areas are good hunting grounds for landlords, but not necessarily for flippers.

eccles291

Thanks for the comments. Sorry for the delayed reply but I work incredibly long hours and don't get a lot of time in the evenings at the moment.

We set up a Ltd company about a year ago with the intention of using it to start actively investing in property, however, our circumstances changed and it has not been used so far. We have an accountant and understand the costs involved of filing tax returns etc. 👍️

The exact location in the north east, or anywhere else, isn't that important as we're looking to buy places in need of modernisation/renovation so they will be BMV, and as an ex-builder I can do the majority of the work myself so that will keep costs down drastically. Plenty of homework will be done before purchasing anywhere though. Incidentally, I grew up in the north east so I'm well aware of the history of a lot of the area so I'm not jumping on a bandwagon of "Ooh, prices are lower up north, so it must be easy to make money there". 😉

saajan_12

https://forums.moneysavingexpert.com/discussion/6661786/buy-a-refurb-flip-property-privately-or-through-ltd-company

We currently live in rented accommodation, but also own a house that we've rented out on a BTL for around 20 years. My wife bought the house on her own before we met but once we got together I moved in and we lived there together for a couple of years. When we moved away from that area we decided to keep the house and rent it out. As part of the most recent BTL remortgage we included my name on the mortgage, which in previous years it wasn't. If I wasn't on the current mortgage I wonder if buying a refurb house privately in my name only may get around the problem of it being classed as a second home, but I'm unsure of the legality of this. If it IS legal, could we remortgage our BTL solely in my wife's name but still include my earnings to meet the affordability criteria?

No and no. A lender would usually only consider affordability of the borrowers named on the mortgage (it doesn't help if you can afford it but you aren't the borrower so can just refuse to pay). Even as a guarantor, your options are limited and probably increases the rate.

Regardless it doesnt' help you as the higher rate SDLT applies to the 2nd (or more) property owned between you as a unit irrespective of who's name its in.

We are moving to north east England in the coming months and are looking to purchase a house in need of refurbishment in order to flip it. Ultimately we want to buy our own home in which to live, rather than continue to rent, and we realise that we can't live in a house our Ltd company owns. Flipping a few properties over time will hopefully allow us to buy our own home. My question is, should we buy a house to flip via a Ltd company, or privately? I know buying privately will incur a stamp duty levy as it's classed as a second home, but will buying it through a Ltd company avoid this? (Incidentally, we won't ever return to the BTL property we have as the area is not where we want to live.) Also, which option would be a better way of minimizing our tax liability - private or Ltd company?

Yes a limited company pays the higher rate SDLT on all property purchases regardless of whether its the 1st or 10th. Otherwise this would be an obvious loophole, as people would just open up a company per property and no one would pay the higher rate.

In terms of other taxes, it depends on your income position. The company would pay corporation tax on any profits, but then that money is in the company and you would need to pay further tax to bring it into your personal account, whether that's income tax (if you work for the company in labour) or dividend tax (company disbursements). So there's some double taxation, but then the interest costs are claimed off taxes. Whereas in your personal name, the profits could be subject to income tax if this becomes your trade, so the tax rate may be higher and you can't fully deduct interest costs, but you're only taxed once. Basically you have to do the sums for your situation.