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Below are sample interest rates and the difference S24 makes and also the effects if within a company -
Interest rate Net of 40% TR. Net of 20% TR
2% 1.2% 1.6%
4% 2.4%. 3.2%
6% 3.6% 4.8%
Company with corporation tax at 19%
4% 3.24% net
S24 is making interest rates more expensive but rates still look cheap so what else is impacting the market?
If I was new to the market I don’t think S24 would put me off, the 3% additional stamp duty is a problem as are high prices and low yields in my area.
If you were new to the market what would be putting you off, is it S24?
I personally believe S24 give a ceiling to investors at present
If you have someone with no other income and they can buy high yields and low leverage there is a Gap
But we could get S24B and this would hit even a basic rate tax payer
I have always said you need a bigger reason to use a company other than S24
I have remortged a number of my personal assets for the reasons you have outlined above
Grab the low rates now as it will help with future s24.
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.
100% the stamp duty. It is massive on a typical house in South London. I used to think that buying right (ie what I perceived to be a bargain) would offset my stamp duty and costs from day 1. That is no longer possible now. So then you look to the rental yields to cover the sunk start up costs but they are so low that it will take years. So you are left hoping that capital appreciation will do it, but that is gambling, not investing.
I cannot comment from a newbie perspective, but for me the single obstacle in buying additional stock is the additional stamp duty.
Its great that rates for Ltd Co has really come down in the past 18 months since I re-entered the market. I was getting 5 years fixes for 3.99% and now that has come down to between 3.59% and 3.65% depending on the lender I choose. The product fees are also getting cheaper. But the additional stamp duty is making almost all the stock that I see uninvestable.I'm looking for 2 bed flats in East London around the £400k/£425k mark, and obviously I'm taking this additional cost into account when I'm making offers, but I'm having to offer between 10% and 15% below asking. I've had limited success, and thats why I struggle to understand when people talk about the London market dropping 10%, 15% or even 20% because if they really did drop this much I would definitely be buying up more stock. But that simply isn't the case where I am looking.
I am new to the market and buying through a ltd company.
I am buying in a relatively cheap area, properties under £100k so stamp duty is a pain, not a game changer. My LTV target is 75% so significant lending costs, all on 5 year fixed mortgages. I’m taking no income from the company for the next 20 years, by which point I do not expect to be a higher rate tax payer. Higher finance and legal costs through a company are more than offset by the tax savings. I only buy where ROI is 10% or above taking into account all costs and risks.
> I’m taking no income from the company for the next 20 years
Even if you plan to take no EARNED income from the company, make sure you claim 100% of the allowable expenses on offer. A decent accountant will be able to help you with this. If you don't want to physically withdraw the money from the company, it will sit in your directors loan account so that you can take it out whenever you want, completely tax free
I also strongly suggest that you (and another other shareholders in the company) DECLARE dividends too. At the moment, you can earn £2k dividends a year tax free. Do this for the next 20 years, and along with any expenses you have built up in the director loan account, it will amount to a nice tidy TAX FREE lump sum!
This is the danger of generic advice, I am well over my tax efficient dividend income limits from another business so declaring dividends now would be poor advice for me. I am claiming all allowances and future CGT offsets against capital costs as I go along. Have a big director’s loan account already from seed money I lent into the company so all good there. Absolutely agree on the need for decent accountants!
compounding for 20 years. Nice !
Coming soon Investorsk8.com
Wisdom - an integration of knowledge, experience, and deep understanding that incorporates tolerance for the uncertainties of life as well as its ups and downs.
SDLT is a transactional tax and is simply a cost of doing business.
As for using a limited company, it's the worst possible way of owning BTLs, and can't for the life of me work out why anybody would do it.
Lastly, if the only thing making a project viable is not having to pay 3% SDLT, then I'm afraid that you have far bigger problems with your business model.
Less Tax For Landlords
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I would be interested to see a thread setting out why a limited company is the worse possible way of owning a BTL as it will help to balance all the comments that is the way new entrants should buy.
I would interested also ( hope you don't mind)
So thread divergence created here -