This straightforward guide will go through our own personal journey and hopefully will provide some food for thought. It is real and our experience, in its rawest form.
Now we had a very similar predicament last year, when our portfolio was growing. My partner and I were both working as well as managing properties (and people think we have the easy life!)We were worried that the peanuts we make on our profits would get penalised, especially if we fell under the higher income bracket.
So we did the sensible thing and decided to do some research. Google was absolutely awful. It is like when you are self-diagnosing your cough, which Google tells you is the first sign of cancer! One page told us it is the bees’ knees, and the other said there was so much extra work that it was not worth it (remember, we are both working, have children, and managing properties). The thought of more work frightened the life out of us.
ALWAYS seek out professional advice, pay the money. We spoke to accountants who explained the process a bit more, which included lots of accountancy geeky words (such as cash flow, shareholders, I have forgotten many of the rest lol) Setting up the business was relatively straightforward, by the way remember that your personal address will show up (so if you can afford to buy a address please do so). Also, there will be regular yearly reports to fill in. You will need to open a business bank account (you can use a personal one, but it gets messy).
CRAP BITS
There is no stamp duty relief for people who buy properties through LTD companies
The mortgage rates are awful for LTD companies
Be prepared for everyone to hike up their prices when they find out you are a business – no leniency for start-ups
The government really doesn’t care about you. Look at the recent debacle over unpaid rent, and everyone else is getting support but not landlords.
BETTER BITS
The liability is on an ‘unnatural state’, so for example, we had a very awful experience at an auction house (This will be covered in another blog BUYERS BEWARE!) and the idiots wanted to charge us £5k for their sellers ’ fees. Due to the charges being on the company, they will have to sue the company rather than us – this is not looking very much like it should be part of the better bits!
You can claim salaries through the company and take dividends to reduce your tax bill. If you put in a director’s loan, which you most likely will do to inject the company with cash to purchase properties, this will mean you can take these out via da director’s loan with no tax implications. This is not possible if you buy a property personally.
If you have children whom you would like to pass property to, with the current capital gains tax and inheritance tax, you end up paying a massive whack to the government. Now we pay our taxes like everyone else, but we have worked hard to purchase these properties. Through a business, you could make your children directors; they can have a stake and pull an income. A good plan for them to love US and keep in our good books, haha.
Now we are struggling to think of better bits, and we are very early in our venture. Maybe more positives will come to life, maybe it will be so tough and hard that we end up dissolving…who knows! Lockdown gave us time to think things through rather than just acting.
The decision is purely personal, and please do seek professional advice before embarking on any route. Use our experience as a personal reflection to help you make a decision, and best of luck in all your endeavours. And this is our plug: if you are a landlord in Sheffield and Rotherham and sick of letting agents, give us a call. We will provide honest and helpful support.
Contact us for a chat.