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I was thinking about my days as an IFA over 30 years ago and I remember giving advice about TESSA and Pensions etc. The rules could be confusing for customers
It could be an uphill struggle to educate clients on Pound Cost Averaging etc and Taxation
I think today BTL has become so complicated
The basics are you buy a property, collect the rent, and watch the property grow in value. It was easy to understand
Today in the BTL is so different! It's become very Political, very Tax inefficient - and at times a worry
Today to be a Landlord you need a very thick skin and I spend most of my time looking over my shoulder and dreading the next Budget
The major changes I can see in BTL today are:
> You need a lot more cash in your bank account to do a deal
> Borrowing is much more of a challenge
> Taxation is a Minefield do I borrow in my own name or do I borrow via a Ltd Co
I think the Company is a possibly flawed investment
The results of S24 are pushing Landlords in to a company and it avoids S24 But it brings a major problem
How do you get your hands on the rewards for the effort you put in?
I think most Landlords who want to own a Company set their sights on wealth creation
But do you really think its worth setting up a company to have £8K salary and £2K dividend tax free?
Most Landlords will be borrowing thousands of pound to achieve their goals so £10K reward is really chicken feed when you think about it
Then we come to the costs of running a Company - Its much higher then personal BTL
From what I can see Landlords will end up with a golden egg worth a lot of cash sitting on a balance sheet
There must come a time when you want more then 8k salary or 2K divided tax free
If you do simple calculations even for a basic rate tax payer, the Tax bill will be inflated compared to personal BTL
Every which way you cut the cake, you're going to pay more tax as a Director than you ever did in the good old personal BTL
Trying to explain BTL today to a novice is no easy task and there is a lot of misinformation out there
In my service days, I remember the IRA using a tactic when they would plant a bomb at one end of a street set the bomb off and the public would run away down the street where there was a larger bomb.
I feel company is just like that Landlords are running away from S24 but will hit much higher tax as they move down the road
If you're going down the Company route look a lot further than S24
Ask yourself the reason would I be a Director if it had not been for S24?
It could be the biggest mistake in your Investment life!
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.
Very interesting, DL. I have hummed and aaah’d about becoming a ltd company, but just can’t see the benefits. I have decided to ‘max out’ ownership in my own name and then wait to see where the sector goes.
I am not as sure as you that things will get worse. I take comfort in the unwinding of Ireland’s equivalent of S24. As the 4 stages of S24 get implemented (at 25% a year), I actually think there is potential that the Treasury will look at the effects of each implementation stage, and end up with a happy medium of 50% of finance costs being considered for tax.
Large parts of the additional legislation coming in is no bad thing. I want the sector to be much more respected. I want to remove the nonsense that gives the Communists at the Guardian ammunition to berate LL’s. Being a LL shouldn’t be easy. There should be some very simple hoops to jump through. Simple compliance would get rid of the majority of bad LL’s, as they wouldn’t have the wherewithal nor the integrity to get through some of the simplest of tasks.
Your assessment of how things useful to be (just buy a house, rent it out) is accurate and was the problem.
It’s not an easy choice
I know that
Your strap line DL says - ``Learn Change and Adapt``
That`s very true and that`s what one has to do with all manner of stuff in life including BTL
I adapted my back door steps the other day to make a ramp for my ageing arthritic dog
Life itself is always evolving .
Babies cant talk but then they do .
14 year olds cant drive but then they do .
25 year olds dont have 40 years of experience in BTL but then they do
65 year olds cant be 25 again
Learn Change and Adapt
BTL is only complicated if you over complicate it and make it that way
But nothing much has changed really in the underlying principles of BTL
Buy - Find a tenant - Take some rent - Maintain it - Pay the mortgage - Pay your taxes
Make £100K rent in 25 years then cash in when it doubles in value from 100K to 200K
Start at 25 and end at 50 . Keep your job for that period and do BTL as a sideline then retire early
Buy 10 of them = 1 mil in rent + 1 mil in equity
Jonathan Clarke. http://www.buytoletmk.com
From 100k to 200k do it ten times
and your company is sitting on a million
just think of the tax bill no cgt allowance
in a company
and if you take as a dividend your tax rate is well over 40%
more around 56% so you walk away with £440.000 if your lucky 38% dividend tax if it’s over 150k plus Corp tax 19% that’s a tax rate of around 57%
and that’s without selling costs ?
When i was about 20 I recall an investor moaning to me saying CGT was a massive sting in the tail
I had no money then and i just saw it as sour grapes on their part
I dreamed of being in a position of just having a gain to pay tax on as that would make me successful
Its like they knew they had to share the spoils with the government but when the time actually came they still resented that fact. Its human nature I guess though and I`m a hypocrite to a certain extent as I`ve just paid my £14,816 cgt tax bill and had a baby moan too
Would I rather though have 0K gain and pay 0K CGT
Have a 1 mil gain and have to pay 280K CGT
I chose the route which means I could pay 280K
Because that would give me a 720K gain rather than 0K
So you have just underlined that it’s bettet to keep BTL in your own name
if a company landlord makes a million and they wish to take the profit how much tax will they pay it’s around 56% if they take dividends a lot more tax
a company is not as good as personal ownership
Is this a DL u-turn we're seeing here?
I thought over the past few years you've been saying Ltd was the way forward?
For under 4 properties I've never thought it was, only if someone was now starting out and planning on buying say 10 properties as well as having a day job.
No I am not doing a upturn personally
because I am older and I need to think of exit
my intention has always been to invest in pensions and my company can give me that
but i relise it’s a straight jacket in lots of ways
but would I recommend landlords who are younger to invest via a company maybe not
taxation of dividends and salary is high
compared to personal BTL
Yes I agree everyone's tax position will be different
I have some in personal and also in a company
You are right to highlight the differences . Trouble is - experts often disagree as well
The point though i was really making there was that to pay CGT means you must have a capital gain
It is good to have a capital gain whether held in a company or held personally
People who never invest never have a gain and never have to pay CGT
720K is better than 0K
Despite the rumours which sometimes circulate - BTL is not dead but very much alive -
Taxes yes get in the way but they are just an occupational hazard on the road to financial freedom
In my opinion CGT is fair tax
but if you compare it to company taxes it’s bloody good
if I was starting off I would go personal first and a company would be second choice even with S24