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  • Mortgages & Finance

    Joint Venture: Mortgage, Stamp Duy & Risks

    I have Potential Partner who is interested in joining forces with me in getting into propety renovation.

    I have some funds, a proffesional background in the construction industry and own a property.

    Potential Partner (PP) is a UK national, has more more funds than me, currently lives and works in Switzerland and does not own a property (UK or anywhere else).

    My thoughts on how this could be structured are as follows, but I'd appreciate input on pitfalls etc:

    • property purchased on my advice by PP (to avoid higher rate stamp duty) using his own funds.
    • we both contribute funds to renovation costs (although majority to be funded by me)
    • I would manage and be hands-on with renovation, although I'd be happy for him to have input on spec, sourcing materials etc.
    • property sold and profit shared.

    I like the idea of having a ltd company through which I do the renovation work which then charges me/PP.  My thoughts being to limit liability (to me and PP) if renovation causes a catastrophe.  Is this idea of liability limitation valid?

    How could the business relationship between me and PP look?  I'm aware that there's all sorts of risks with this arrangement here for both of us (but perhaps more for PP), I imagine we'd need some kind of contract to cover both our interets and attempt to even up the risk we're both eposed to.  Would this this kind of arrangement effectively be a Joint Venture?

    Too many questions for one post?!

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    http://www.smartbuild.uk.com | Structural Engineer


    Some things to think about:

    • it would be very foolish indeed if you don’t have a written contract, setting out exactly what each party’s responsibilities will be, what your contribution will be, how you will decide what happens to the finished project (sell? Remortgage? How do you decide if the two of you don’t agree? etc.) Get an English-qualified solicitor to draft this for you

    • If only PP owns the property, you must get a charge or restriction on the property’s title at the Land Registry.

    • If you don’t sell, how do you get your share of the “profit” (uplift in value above purchase cost + all other project costs) out?

    • is buying in PP’s name really the best way to do this? Is the stamp duty so much that it should materially affect your decision making, maybe to the detriment of your overall position?  Would something like an LLP or Ltd company be better? Get some UK tax advice as your choice at the outset will affect your overall tax hit.

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    Thanks Rassie, some great points for me to think about/research further.  Your last point in particular struck me - there's no point saving a few grand at the beginning only to be exposed to much more expensive risk/disagreement further down the line.   That said, with funds available I'm looking at small schemes to get started and the option of avoiding an ‘unnecessary’ £3750, say, on a £125k property purchase seemed worth exploring!

    Another thing on my mind is availability to finance (not enough funds to buy outright) and how this would be affected by being an incorporated entity.  I clearly need to seek financial advice, it’s just there's so many unknowns I'm not sure where to start!

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    http://www.smartbuild.uk.com | Structural Engineer

    Thanks Vanessa, an enlightening read.  I'm acutely aware I have a lot to learn here, but it's great to have my eye's opened to all the things that need to be considered!  Many thanks.

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    http://www.smartbuild.uk.com | Structural Engineer

    Rassie gave some great advice.  I'd just add that as soon as you start setting up a construction company which charges you you're liable for CIS which you may or may not pay already if you're in the industry. You'll also be liable for VAT if the refurbs are over the threshold. I do have a company and do pay CIS on construction but not VAT as there's no alternative but it seems that if you are doing it in your own name you won't need to pay. There are others here much more experienced in this than me but just something that stood out to me when reading your post.

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    East London based property developer, investor and speaker

    East-Eight.com

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    Hi Nicole,  I know this thead is old now but I only just saw your reply, many thanks for the advice.

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    http://www.smartbuild.uk.com | Structural Engineer

    Better talk with a Solicitor and property tax advisor, you cannot do it DIY.

    You buy in PP name, you save 3% stamp duty, and then PP when sell, since it is Trading activity he will pay income tax and NI (not CGT) on it, since he live in CH not UK, or are you thinking to declare him resident at the property? Implication in CH?

    Do it via Limited, do via a solicitor a JV agreement, do things properly.

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    Hi LondonSW, yes, understood and agreed - I am now better informed than when I started this thread and realise that the best way is the correct and non-dodgy way!  Especially as I'm looking to get into this for the long run, and not just for a quick buck.  Cheers.

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    http://www.smartbuild.uk.com | Structural Engineer

    You sound like a genuine and nice guy, keep us posted and we can try to "vet" your structure.

    I am working as well as we talk on a complex deal with sites owner to develop it sites on a JV, and we are working on a share option purchase agreement (he does not fully own two limited that own three site), on a JV, and on a separate shareholder agreement on may and my partners newco to do that…things can be complicated!

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    HI SmartBuild


    I have a project and I am looking for someone to join forces with,  50/50 risk, with split profit.


    Autopilot


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