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  • Mortgages & Finance

    Recycling finances between personal and LTD

    Dear all,

    

    I currently have 3 properties in my personal name as well as 1 in my LTD SPV company. The properties within my personal name have no mortgages and I am keen to refinance these properties to release equity.

    Due to being a higher rate tax payer things are far more tax efficient with my LTD SPV set up. I was wondering if there is a way of remortgaging/ financing my properties in my personal name and lending the money to my company to make further property purchases. How would I go about claiming mortgage interest as an expense if doing it this way with the new tax regulations?

    Thanks

     
    Kam

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    Hi you can simply give the company a directors loan to the SPV LTD. That loan can be taken back-out from then profits tax free negating the need to pay corporation or dividend tax up to the amount loaded.

    I have to take point with your understanding of an SPV LTD company as tax efficient vehicle for a higher rate tax payer to rent property out. Currently rental property is taxed for personal higher rate tax payers at 40% with no NIC payments due. Whereas SPV LTD is 19% Corporation tax and 32.5% dividend tax giving a combined taxation bracket of 51.5%.

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    Dear jack 

    Thanks for the speedy response!

    I am aware I can give my SPV a directors loan at the same rate of interest as my remortgage. But then wouldn’t I have to pay income tax on my personal tax return?


    also regarding the SPV. It works out more tax edfirjcnt for myself as I can claim mortgage interest as an expense (more important for me after 2020 tax rules). I can also claim 2k tax free dividend. For me overall it works out to be a smaller tax bill. 

    Thanks again. 


    Kam

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    If you borrow against your existing property you’ll incur interest.

    if you lend money to company you can charge interest

    however that interest is chargeable on your personal return (deduction against company though)

    What you might want to do is just borrow the down payment against your property and take out a BTL mortgage in the company.  Same issue but smaller figures and overall better.


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    so basically if I was to have interest only remortgage payments of £500/ month. I could lend it to my company at £500/ month. But I would also be paying income tax on that £500/ month on my personal tax return when the company pays me back. Which doesn’t help matters. 


    What you are reccomending is that I remortgage my current personal property just enough for a deposit and take the rest of the BTL mortgage in the company?


    is there anyway I could take a BTL mortgage in the company and have my personal property as the security?


    Thanks

    Kam

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    Thats right Cheema

    Definitely tax “leakage” on Interest payment but only if you’re a height rare tax payer.

    I can’t assist with finance but speak to your bank or a specialist broker and they might be able to assist.


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    You should be able to full tax relief on the interest you pay as you are investing it in a qualifying close company and charging the same costs to the company. So from a personal perspective you get no profit on the interest (income - costs = nil) and the company will have finance costs. s24 will not apply.

    We do this sort of thing regularly. Give me a call if you need any help with the mortgage or the tax. stuart@johnsonsca.com or 0203 907 7022

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    Tax advisor and mortgage broker

    stuart@johnsonsca.com

    02039077022


    Hi Kam.

    I have to say that I am not a qualified tax expert here but BTL lenders will usually allow refinancing with capital raising for any legal purpose – but some do not permit the raising of funds for an ‘injection’ into a business (they really do not like tax bills or gambling debts though).

    I have done a quick search for lenders who will lend funds for the purpose of buying another rental property and it was a long list. The distinction is lending it to your limited company for property purchase. I cannot imagine a list that was that long not having anyone who will do what you are asking – so you should have good options to choose from regarding lender and products. 

    As for claiming interest relief that is definitely something you should talk to your accountant about.  What I am about to say may be very wrong but I cannot see how you can do that without you personally charging your limited company interest on the money you raise in your personal name on a property that is owned by you personally which you then ‘lend’ to your limited company. 

    That said if you do charge interest to your business then I would like to think that is then a cost of running the business and therefore some relief could be applied – but you will need a tax specialist to confirm this one way or the other.

    I hope this makes sense,

    Cat

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    Call the PT Broker Hotline on 0333 363 6507 or email us at ptbrokers@johncharcol.co.uk