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  • Tax

    Higher Rate Tax Payer Help!

    Hiya

    I’m new to the group BTW; I’m loving the content and the wealth of knowledge you all have!

    My question:

    I’m a higher rate tax payer (salaried employment). I’d like to start investing in property. I’m in the process of remortgaging my South London flat to release equity to purchase two three bed BTL properties (repayment mortgage). I’m planning on renting these properties out on an HMO basis in a university/professional location in the North West.

    I will be using a letting agent to manage the properties. I plan on growing my portfolio overtime and retaining the majority of the properties to hand down to my son (and any other child I may have in the future!). 

    Given my tax position, i’m minded to purchase the properties using a SPV rather than in my own name. Is this sensible? I’ve been told that companies are not necessarily tax efficient and that a ‘hybrid’ structure may be better (Partnership and LTD combined).

    Apparently there is some risk with the latter because HMRC have not approved the same. Is there anyway I can mitigate the risk eg insurance etc? Is there an alternative tax solution I have not explored?

    Thank you for your help in advance.

    Stephanie

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    Hi Stephanie and welcome to the tribe.

    Forgive me for saying, but I am not sure your strategy is a good one for your situation, being a novice landlord.

    You are proposing to combine a higher risk strategy that is mostly undertaken by experienced landlords with the additional risk of buying "remotely" and using lettings agents.

    In my opinion, there are very few lettings agents who undertake HMO management because its a lot of extra work and legislation and the margins are simply not there for them.  This again points to the reason why most HMO landlords self-manage.

    See - When to say "no" to an HMO?

    I would definitely re-think your strategy and start off with something lower risk.

    With regards to your tax position, a forum is for discussion, not giving for professional advice.

    We have a number of threads that may help you form an opinion, but ultimately, you should find a reputable accountant and take their advice:

    Tony Gimple (Hybrid) v Mark Alexander (BICT) 

    LLP/BICT - feeling wobbly about tax structure

    If I were in your position, I would really go back to basics and re-think your strategy.  I regard what you are proposing as exceedingly high risk because you are combining a higher risk strategy with remote ownership.

    My advice and approach is to always start off with something low risk and then build solid foundations of cash flow so that you can diversify into higher risk strategies.

    Sorry if that is not what you wanted to hear, but I hope it gives some food for thought at the very least?

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    Hiya

    Thank you for your reply.

    Whilst the properties meet the definition of a HMO, the licensing requirements won’t kick in because I will only be letting out each property  to three tenants. Moreover, the HMO requirements are all doable ie ensuring fire safety / bedroom size requirements etc and so I don’t feel that they will be problematic. The HMO rules are designed to improve the standards of lettings to multiple occupants. I think the requirements are necessary and so I will be ensuring that my properties meet that standard in any case ie without being compelled to do so.

    I have also sourced a letting agent who will charge 10% of the rental for each room. They will be motivate to ensure the rooms are filled and tenants are comfortable because their income depends on it. 

    Re tax, I will take a look at those threads you have attached.

    Thank you

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    Technically you won't have Licenceable HMO.

    You don't need to have anything done to a property if 4 occupiers or less.

    The rooms could all be 4m2 you would still be compliant.

    HMO regs only normally kick in at more than 4 occupiers.

    So all you would be doing is letting a normal house.

    Personally I'd go for a houseshare then the tenants are responsible for everything.

    No expensive adjustments required; it is just a normal resi property.

    Exceed 4 occupiers and then your problems start.

    Have you considered the lodger strategy!?

    Worth thinking about.

    You 'stay' at your other main residence once a month!

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    Fairly new to HMO but I always thought the definition of HMO is 3 or more people (including children) with 2 separate households.

    I was told if I am letting to say 2 separate single nurses in 2 bedroom and one of them has a child, it's technically a HMO.

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    Hi Paul

    Yes I completely agree re HMO requirements. I will however try and source properties which meet the room size requirements just in case they amend the HMO rules to include three occupants! I’m going to definitely do some research into house shares (I presume it means they will all sign one agreement...) because it means I can get the tenants to cover the gas/electric etc.

    The lodger option may be a way forward...I’m going to check the rules on this too! If I source properties with two receptions, I can reserve one reception room for myself for this purpose.

    Thanks Paul

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    This site is excellent for lodger stuff (remove the s from https)

    https://www.lodgerlandlord.co.uk/

    This one is also useful (again, remove the s)

    https://www.lodgersite.com/sitemap.html

    Government booklet

    https://assets.publishing.service.gov.uk...138292.pdf

    This gives a good overview of HMOs - not just licensing

    https://nationalhmonetwork.com/



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    Yep I think you are very wise re 3 occupiers because of course this situation ALREADY exists where councils have introduced additional licensing.

    So I would ensure that the room sizes would be HMO compliant.

    So a 5 bed house with 1 room under 6.51m2 to me is a 4 bed house with a large storage room or a bedroom for a child under 10.

    Not much use.

    Many property owners will find little interest from potential LL buyers if rooms cannot be adjusted easily to make them HMO compliant.

    LL want to futureproof a property.

    Addtional licensing is easily evaded if you want to but if you wish to be compliant this causes all sorts of problems.

    I know I would never wish to go down the licenceable HMO route which is normally more than 4 occupiers.

    So if you weren't ever going to use a lodger strategy then a 4 bed property is all you need.

    Ideally with HMO compliant rooms but not necessary unless of course additional or selective licensing comes along!!

    I guess if I was being paranoid and based on how things are currently I would go for a 4 bed property max with all HMO compliant rooms.

    I can't see the licenceable HMO being reduced to 3 occupiers though of course Additional licensing does just this.

    I guess if it is relatively easy to adjust room sizes then a property is more saleable.

    But many homeowners will find that few LL will want their properties due to these HMO requirements.

    But of course with a too small bedroom it can always be let out as storage.

    But I reckon those with 5 bed properties will find values reduce to a 4 bed as few LL will want them.

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    Hi Paul

    Absolutely. The key seems to be to get properties with the right sized rooms or properties where adjustments can be easily made to rectify the size issue.

    I didn’t think of the storage option. That’s quite interesting.

    Thanks Paul


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    Anither option for a non-compliant room could be office space.

    Space for some filing cabinets and a desk. It would be cheaper than normal office space.

    Another advantage is that the office worker would would usually be around all day

    Though I guess there might be insurance and planning issues and possibly Council Tax issues

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