General (main property discussion here) - Should I use a Ltd Company?

I currently own 3 properties. I have,up to now, not created a Ltd but as I am planning on growing the number properties that I own, should I be considering creating a Ltd company? As somewhat of a novice Landlord I would appreciate advice!

Joanne,

It often very much depends on how large you are likely to expand to because of the inherent costs involved with a Ltd company? It is important to first think through this.

Try this link for some tips http://www.carterandcoley.co.uk/2077/frames.php

Francesco

I tend to advise people to as early as possible. As long as you're meticulous with the paperwork and can afford the cost of an accountant, in the long run I think you'll be glad. Obvious benefit is tax efficiency. Take the advice of an accountant, but definately consider it (imo).

Will

I agree with Will Foot up to a point. It all depends on how you want to sell down your portfolio though. This is where tax relief comes into effect most notably. Can you supply more details of background/ plans?

Martin

Thanks for your responses. I am also considering investing in France. Does the same theory hold up?

Joanne

only problem is joanne I looked into this, if your properties have no mortgage great, but if you do then most mortgage companies will not allow you to form a limited company and incorporate your properties into it!

Good point Paula. I looked into this as well and you are right it is highly tax inefficient to transfer properties from an individual into a Ltd company. It is better to put the property in the company fromthe outset.

Another point Joanne is that it is often more expensive to borrow using a Ltd company. So if there is a mortgage on the property at the moment you would need to pay this down (perhaps at a high cost) and take on another mortgage with a lender that doesn't have issues with Ltd companies. Typically for this they charge a higher rate.

Bob

That amazes me!

From the mortgage co's point of view - who cares? The loan is still asset-backed. Cost of default to the "owner" is still sufficient disincentive... I thought the financial markets were becoming more efficient.

I can understand why an unsecured loan would bear greater risk if issued to ltd co vs individual.

Will,

Bob was in fact correct. What is it you studied for your Masters???

There is a very good reason for this. A Ltd company is by its very nature limited in its liabilities. No recourse beyond a company's asset base. Well this isn't entirely true as some lenders will tie a director in for £40,000 or so of personal guarantee should assets not cover the liabilities.

But £40,000 is not really very much. Should the property market tank 25% and you are all borrowed at 95%, there is a good chance that the Ltd company will owe the bank more than this figure. But if the company declares itself bankrupt the lender is unable to retrieve the loan.

By contrast, if the lender had lent this same sum to an individual, there would be full recourse on all their personal assets as well as their investment property(car, house etc etc) and work out a repayment schedule. Greater chance these assets will total more than £40,000 and the back will get their money back.

Hope this helps.

Julian

^ are you sure about your "By contrast, if the lender had lent this same sum to an individual, there would be full recourse on all their personal assets as well as their investment property(car, house etc etc) and work out a repayment schedule." statement?

I think you'll find that a BTL mortgage would only apply to the property it is accepted on, not to your PPR. That is the difference between BTL and a normal residential mortgage. If there becomes a problem with the BTL they will just take the BTL property back, nothing more. I have never had my PPR details mentioned or questioned on my BTL dealings.

I have traded as a LTD company sine 1985, I have 13 properties under it.

NEVER has a lender allowed me only 25% personal security, the lender has always wanted ALL of the borrowing secured, so you are NOT protected by the 'LTD' bit

Also the interest paid by a LTD company is usually 0.25-0.75% more

I am now buying properties outside of the LTD structure, as a partnership

Adam,

I use Natwest and have given a very low guarantee on my Ltd. No recourse beyond that on any of my assets.

Paragon I have used and they work differently.

Julian

I have written a book entitled 'How to use Companies to Cut Your Property Tax Bills'. It is available through www.property-tax-portal.co.uk, along with a few other products landlords may find very useful.

We also offer affiliate opportunities through the site, Landlord Trader can take a look at this section and consider linking to us.

Ian McTernan CTA McTernan Associates Ltd Chartered Tax Advisers

PS and before you ask, yes I invest in property and also trade in it as well as being an expert in property taxation matters...

I have always used a limited company due to the tax breaks offered by using dividends for payments, there is however talk of this being addressed in the near future by the revenue. There are also complications involved in the trading/investment classification of the company that are worth looking into when initially setting up.

Graeme,

Good point. People should always decide what kind of business they will be doing i.e. trading or investment. If you think you will be doing both then is is probably worth having a company for each activity.

Always get advice from an accountant at the earliest opportunity.

Julian

Julian. Good accountants or should I say creative accountants are pretty scarce, I compare them to cars - better changing them every couple of years. Not that many are really clued up on our industry and I inevitably find that I suggest the best way forward, they agree and then invoice me............

too true- though they are cheaper than solicitors!!!

If your normal income is already into 40% tax then ltd has very little use aprt from when you actually sell the houses as the tax paid is less. But if it's long term investment then it may be better to not go Ltd as you can get away with a lot more than if your Ltd. And of caurse going Ltd means you may need an accountant.

i think it is the other way around.

if youre normal income tax bracket is already at 40% then a ltd is very useful?

the reason why is that if using a ltd company then your investment income is only taxed at c. 20% rather than 40% (your personal tax bracket).

tom