Singing Pig

We have 7 properties and all going well we make around £600 per month from them. However as you all know there's always someone who doesn't pay or decides to leave when their rent's due and doesn't let you know - the joys.

Anyway both me and my husband have PAYE jobs but aren't sure if we should form a limited company for the property income and expenditure. We want to start "doing things right" from a tax point and the ultimate goal is to work for ourselves full time and give up our jobs. The way forward we think is to form a company.

All advise as to progressing forward would be greatly appreciated. 

Do a search here on "Limited Company".  This has been discussed numerous times.

Especially now that CGT for Partnerships has been fixed at 18% it's very much more favourable to trade as a Partnership rather than Ltd Co.

Contact an accountant and ask for advice, as each person's circumstances are unique.

The main reason for forming a Ltd Co is once you've become massive (more than 50 properties), or need to conceal your income from a vulturous ex-partner, for example!

Before spending too much time considering a Ltd Co - be warned that you will find it virtually impossible to get decent mortgages.

Have fun,
Alan

Thanks for the reply Alan and vulturous ex partner is one of the reasons behind our thinking.

What do you mean about difficulty in obtaining mortgages though?

Cheers 

Thanks for the reply Alan and vulturous ex partner is one of the reasons behind our thinking.

What do you mean about difficulty in obtaining mortgages though?

Cheers 

It's because not many BTL lenders will lend to Ltd Co's.  If they do lend to Ltd Co's, then the terms and service levels are usually worse.

Most lenders, when lending to a Ltd Co, will require a Floating Charge over all your properties!!!!   This means that you are, in practice, locked in to that one lender (because most other lenders will not accept floating charges on their properties).

You will almost certainly not be able to use creative finance techniques either, because most Ltd Co lenders insist you use their own solicitors (the creative finance techniques rely upon using a solicitor who properly understands the creative techniques and is happy with them).

Worse still... if you're planning to buy from distressed sellers, you may as well give up now... because the lenders' own solicitors usually take MONTHS to complete rather than the days.   This is no good if someone is contacting you BECAUSE they need a quick sale!

Best of luck,
Alan

To add... if anyone knows of a way to do NMD BMV deals via a Ltd Co, then please let me know - I have been searching for years (Deed of Trust is not viable for me because, for other reasons, I need the mortgages to also be in the Ltd Co name).

Alan

To transfer the properties to a Ltd Co will mean obtaining a current market value for them and then any gain is potentially taxable, plus there will be stamp duty, as effectively the properties will be sold to the company.

The above is unlikely to be cost effective.

There is another way to make use of a limited company though: set one up and use it to manage and maintain the properties. Thus all rents would be paid to the company, it would charge you the maximum of the going rate for management (so as to reduce your personal tax liability).

There are myriad ways to withdraw money out of a limited company either without incurring a tax liability, or with any liability significantly reduced. For example, if you enjoy eating out, you might have a directors board meeting at your favourite restaurant on a regular basis in which you would be reviewing the position of the company, each meeting being minuted. Again, the company could instruct it's directors to attend a London property show to assist in deciding future strategy of the company. Thus the hotel, meals and travel would be met by the company. While in London, you might then decide to take in a show or two, or enjoy the night life in other ways.

Limited companies are a godsend, trouble is many small companies don''t manipulate the system to maximise the  privileged position directors enjoy.

As David says transferring them is unlikely to be the answer. Using a limited company as a "letting agent" can however be productive in some circumstances although you are probably too small right now to be worth your while with 7 properties.

Given you have this many properties presumably yu ahve a proffesioanl tax advisor. I would have a chat with them when you are completing this years return, but I imagine the answer will be "stay as you are"

Regards,