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I'm well aware of the Ltd company v personal arguments and for us it seems like a bit of a no-brainer to wrap in a company (additional rate tax payers, cash buyer, all profits to be reinvested) but one thing I'm not too sure of is the best structure for multiple properties.
At first glance the simplest and most flexible option would be one company to hold all properties but are there any advantages to splitting between multiple Ltd companies or negatives of holding a whole portfolio in the same entity?
We're probably talking around 10 properties purchased in cash over the next five to ten years.
It's a interesting question, originally people split limited companies as lenders wanted a company wide debenture.Which is not a problem in itself but then using other lenders was an issue, as they too would want a debenture and may require consent of the original.These days this has mostly gone to the wayside, no longer a pressing issue. Lenders more willing to work together.
I can not think of a reason today to use multiple companies? Love to hear anyones thoughts.
Except that of typical business reasons. If you are building a portfolio in London and in The North, would it be better so split the properties into two companies. Allowing you to sell the shares in either, in full to a landlord in that area or in part to an investor wanting to invest in that area.Perhaps also as large building firms do, segmenting projects in lines of failure. To give freedom of one company failing, though allowing the other to continue. Though with personal guarantees not sure how solid foundations that would be.
_________________________________________________________________________My posts are not financial advice, just a rambling guy passing time on a coffee break.The team at Bespoke Finance offers advice, including Limited Company Buy-to-Let , HMO Conversion and Cheap Life Insurance._________________________________________________________________________
A good question. Before anyone says you are wrong in using a company, I will assume you have done your homework and it works for you.
As was noted above the issue of a debenture used to cause issues but less so in the last few years (there are still some banks requiring it which kills other lenders). The downside of many companies is additional fees and the upside greater flexibility. I would tend to lump similar properties together.
If you have say a hotel as one of your properties then you might be better to do that separately from the rest of your BTL portfolio as a lender may in the future not be happy with the risk of this being in his borrower. If you have properties in the North and the South then you may find it better to separate out. If you are holding some for long term and some for short term then perhaps the CGT / Stamp Duty issues may make it easier to separate out.
My view is use one company where you can but ensure that you have coterminous end dates to ERC's (roughly) in the same company so that you are not finding one property is holding back the whole portfolio.
I strongly suspect that the market will evolve to provide portfolio loans rather than individual loans to portfolio landlords. Some lenders do this but its not mainstream yet.
Again like everything you need to look at the future and try to guess the future!
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
If you’re looking to incorporate your existing portfolio you won’t have the luxury to choose multiple companies or one.
for additional purchases you can make your decision based on your circumstances at the time.
@J Stuart Thomson / Adam Hosker
Interesting points, thanks for the input. We're not intending on using any leverage here as it's mainly somewhere to park some excess income alongside other investments, but definitely worth taking into account now in case that changes in the future.
I'm assuming that for lenders to not have any kind of issue the companies would need to be isolated rather than part of a group? Ie: A parent company made up of several regional companies.
@High Net Worth Advisory - These would be new purchases.
I am never sure forming a company is a no brainer
it takes a lot of thought
with out a shadow you pay more tax in the long run
it will only suit some landlords who use it for other reasons than just to avoid 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.
We've run the numbers several times and the company always comes out ahead (for our situation). Happy to be proven wrong though based on the following:
You will save on taxes but will be stung on professional fees
Interesting point. These will be cash purchases though, so no mortgage / broker fees involved.
It will depend on how you take your prrofits
personal income tax is
so if you take salary over around 8 k per year you will pay employee NI and employer so you will pay more than tax than you would in your own name
if you take dividends your company pay Corp tax before you recive your dividend then you will pay dividend tax again it will be higher than 45% you would pay in your own name
I know you get a small tax free allowance with dividends but it’s only a couple of grand
so every way you go you pay higher tax
DL, you've missed extracting profits as interest on a director's loan. In my circumstance, this is far more tax efficient than a salary (Up to £17.5k pa tax and NI free) and still allows me to extract dividends should I wish at 7.5% tax as BRT (after paying CT on profits).
A good teacher must know the rules; a good pupil, the exceptions.
Martin H. Fischer