Tips For Going Full Time Into Property Refurbishment

Hi Gabriel

Forming a Limited Company makes a lot of sense for your new venture

Transferring your two BTL properties to the company would definitely attract Stamp Duty. Also, any capital gains you have made on the properties since you purchased them would also be taxable. This isn't the way to go.

Do you have any existing mortgages on the properties?

I get the impression that your new business will be your sole income producing occupation, save for the rental profits from your two BTL's. Is this correct? If so, you will not need to concern yourself with the impact of restrictions on finance cost relief for individual landlords until your taxable income (including mortgage interest) exceeds £43,000 a year. On this basis I suggest that you remortgage your BTL properties now to raise cash and then loan that cash to your new business in the form of a Directors Loan. Your company will be able to pay that money back to you, tax free, once it starts making profits. You will also be able to draw £5,000 a year of tax free dividends from the company, subject to profitability of course.

Are you married or in a civil partnership? If so it would also make sense for your spouse to be a 50% shareholder in the new company. That way, he/she will also be eligible to receive up to £5,000 of tax free dividends. Also, if he/she has any unused nil rate band allowance then a small tax free salary could also be paid.

I wish you all the best with your new venture and if you would like some further bespoke advice please see >>> https://www.property118.com/consultancy-mark-alexander/61522/
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This is what I do.

IMHO, the last thing you want to do is let out your refurbishments. Sell them and use the capital to buy and do up more properties. There's no point in borrowing from the usurious banks unless you need to when you are getting a smaller return from letting (of course, this depends where you are in the country.) The banks are just grasping ****s when they lend to small developers. They make the ideas for fees invented by letting agents look positively pathetic. The arrangement fees are breath taking. And the security demanded is another little joke.

The good thing about refurbishing is that you can get the best of both worlds. If selling prices look poor, just rent out for a bit until they recover.

Good luck. Are you doing the refurbs yourself?

Good advice from Mark, one thing to add is that there will be a difference in tax treatment for your company dependant on whether your intention on purchase is to sell or rent out your properties. The first will be considered a trading company and the second a property investment company. A trading company will be charged corporation tax on the profits of sales whereas an investment company will pay CGT. A trading company CAN hold and rent out their properties if they are unable to sell them, but you should be able to show that you've made an attempt to market the property for sale and you should at some point when the market improves actually sell it. You should do your homework on this aspect if you are unclear about renting out or selling your purchases. Read up on it on the HMRC website and speak to your accountant.

Reply to the comment left by "Kate Mellor" at "10/02/2017 - 10:41":

Hi Kate

You are right about there being differences between a trading company and an investment company but you are wrong about the tax treatment of profits. Both would pay corporation tax. CGT does not exist for Limited companies.

The main differences between trading and investment companies are Entrepreneurs Relief (CGT on the sale of shares) and Business Relief which affects IHT.
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Reply to the comment left by "Mark Alexander" at "10/02/2017 - 10:54":

Ah, okay thanks Mark. I think I was mixing up my research regarding the tax treatment of an individual or partnership either selling property as a trading business or a property investor! Thanks for pointing that out. 🙂

Reply to the comment left by "Kate Mellor" at "10/02/2017 - 11:35":

You're welcome, and your research is correct in regards to taxation of individuals and partnerships.
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