Trading Company BuyToLet + Landlords Tax Strategy

It is not easy to arrange a BuyToLet mortgage for a trading company, the few lenders that do offer loans to limited companies usually insist that the company is a Single Purpose Vehicle, often referred to as an SPV.

This is an issue which our readers often ask us about, particularly how to structure financing effectively or how to get the cash out of a trading company to invest into BuyToLet personally without paying too much tax on the cash they take out of their company. An email today from a lady called Sharon inspired me to write this article. Sharon’s email is below:-

Hi Mark,

We wondered if you could help with the following.

The email Newsletters from property118 have encouraged us to look at our company and its positioning.

We are an electrical contractor with a sales centre and service division who over the years have accumilated some spare cash.

Rather than extract the money and pay 40% tax we considered purchasing a flat/flats with an initial 25% deposit for rental purposes. We considered this to be a good time also with the use of our own internal staff and knowledge of sub contract labour for certificates, maintenance or installations etc.

Our accountants are suggesting this not be a good option because of Inheritance tax and mixing Trading / Investment activities and suggesting a separate company be formed.

We are keen to find out what your thoughts are and wondered if you could reply accordingly.

Many thanks and kind regards,

Sandra 

Trading Company BuyToLet – what’s possible?

First the legal bit – this article does not constitute professional advice, it is simply an opinion which I have provided in order to encourage Sandra and other landlords why they ought to take professional advice from other landlords with the experience and professional qualifications to provide it. I am a retired adviser, however, if you require professional advice I will be happy to recommend you to my contacts, simply email me – mark@property118.com – same goes if you have a different question, I do not charge for this service – more details HERE

Broadly speaking I agree with Sandra’s accountant. However, there are a lot more tax advantages to buying in personal names than in a company in my opinion. I’ve explained my strategy HERE.

If Sandra can’t find a way to get the money out of her company without having to pay a lot of extra tax then creating an SPV as a subsidiary of the trading company may well be the most effective way to go. The new SPV company can then borrow money from the parent company on pretty much whatever terms the Directors choose to agree. That way there are no income tax implications. However, if there is a way to get the money out of the trading company tax free that may well be the preferred route I suspect. It would certainly make it a lot easier to obtain BuyToLet mortgages as far more lenders are lending to individuals than companies. Either way, if you need a referral to a good broker please speak to my business partner Neil Patterson on 01603 489118

How to get money out of a trading company to use for BuyToLet

I have actually been in this position myself. I put the money in the company into a self invested pension scheme tax free. I then used the pension scheme to buy assets from me personally, in my case it was the office which I’d purchased years ago before the company was formed and which I was letting to the company. Instead of the company now paying the rent to me it pays the rent to my pension scheme. Very tax efficient 🙂

Of course the money I received from the sale of the property to the pension scheme was also taxable but only on the capital gain. I could have sold other asetts too but I won’t complicate this any further. The bottom line was that I didn’t pay income tax on the money I took out of the company becuase it was structured in a smart way using pensions. There are lot’s of other ways to do this too such as using Employee Benefit trusts but that’s far too complicated for a blog.

If you are in a similar position, and you would like me to refer you to that people who advise me, simply drop me a line to mark@property118.com

Obviously the more the better in terms of detail you can provide as I have several different contacts and I don’t want to waste anybody’s time, yours or theirs or indeed my own.

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