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  • Tax

    Advice on a Ltd Company

    Hi all,

    I was hoping for a little bit of advice.

    My wife and I are currently looking to buy our 2nd BTL and we are not sure whether to buy in a Ltd company or not. We are both basic rate tax payers and can afford to buy in our personal names and not be pushed into the higher tax bracket providing we equalise our salaries (although we will be close to the 40 percent tax bracket). We are both 27 and I would like to think that in the next 3-5 years we would have had pay rises making us higher rate tax payers (myself more so as my wife is now working part-time).

    So my question is; Do we bite the bullet and invest through a Ltd Company even though the interest rates and costs are higher or do we invest in our personal names and buy all subsequent properties through a company?

    on a side note, our current strategy is to invest in areas that are likely to see high capital growth and then recycle that deposit when we remortgage. Is this a flawed strategy when buying in our personal names? My reasoning is that with the lending criteria stress test at 5.5% interest rate x 145% rental income - it now seems that lenders are more interested in achieving rents than the LTV?

    Because of this, would we need to buy in a LTD company (where the stress tests are more leniant) for our strategy to work?

    A very long winded question! If any of you can give any advice it would be very much appreciated!

    Thanks all!

    Adam

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    Adam Ridgway

    Hi Adam,

    Personalised and professional advice is needed to be sought here.  It is one of the few occasions where forum advice is inappropriate as commentators do not have a full picture of your situation and may not be best qualified to advise you.

    I can direct you to two threads that will help bring clarity though:

    The BIG tax issue: Should I incorporate?

    Convergent relationship between finance and tax and Landlords' tax positions (sole trader or ltd co?)

    Hope that assists a little?

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    Thanks Vanessa, I will definitely be seeking professional advice before I move any further. I’m more than happy to pay for professional help when neccessary!

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    Adam Ridgway

    Let’s turn this around - if it was not for S24 would you invest in a company?

    OK,  let’s say you have the company and you wish to draw the profits, do you understand how to do it?

    Salary?

    Dividends?

    Do you understand stand how they work?

    In my opinion you need to understand what you're doing and why

    If you're just trying to avoid S24 I’m not sure a company is the right way

    You need more reason and you need to plan for the reason

    A company may work, but I will guarantee later on when you want to draw income or cash over very low thresholds you will pay more tax and it will be higher than 40%  ??

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    Thanks for the reply DL.

    I’m definitely going to seek professional advice.

    Salary wise - wife - will be around £25k

    myself - £37k

    this is not including the ‘profit’ from our current property which is approx £6300 per annum (inclusive of the mortgage interest).

    My current thought regarding taking money out of the company is currently to take out the tax free amount every year and then put that back in therefore effectively building up a lump sum that we would be able to take out tax free further down the line. Unless my understanding of this is incorrect?

    any threads or information you have would be very useful as I’m very interested to learn as much as possible.

    The decision to either incorporate or continue to buy personally won’t be made lightly though and as I said I will seek professional advice.

    One thing is for sure though and that is that I will be continuing to expand my portfolio as I still believe there are big opportunities to be had! S24 is just another hurdle!

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    Adam Ridgway


    I have just posted a new thread on this topic which you mind find helpful

    be under no illusion as a director you will pay more tax in a company when you extract your profits

    as some point in the future

    DL

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    Hi Adam

    Incorporating is not for everyone. I advise many of clients that it is appropriate but definitely not all. In your case I think the question will centre around what is the future looking like. You indicate buying more properties and using finance in which case s24 may be a killer (I actually think you may be close to s24 issues yourself already but you can equalise that with your wife with some proper planning) without using a company. You have suggested high growth areas and so one assumes lower yield in which case you are not buying for income but growth in which case profit extraction may not be relevant as you can retain 81% of profits in a company for reinvestment. I certainly would not take it out to then reinvest it in a company - that is likely to help HMRC and not yourself. Your likely exit should also be considered as the tax can change depending on the structure.

    Give me a call if you wish to discuss further.




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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    I think he was talking about taking the annual tax free divi allowance out each year, and loaning it back in, as it could then be used for future growth, and removed again tax free in the future.

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    Hi Neil, yes that is exactly what I meant. You worded it a lot better than me!

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    Adam Ridgway

    Hi Neil

    That's a fairly standard suggestion but it really depends on his other affairs as it is not like a personal allowance it is taxable income (just at 0%) so can affect other income.


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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022

    FORGET THE LTD COMPANY IDEA.  Tony Gimple has looked at 5000, landlords portfolios and NONE are suitable for incorporation.


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