People ask me this question a lot, it goes something like this – ‘I’m thinking of getting into property but should I buy in my personal name or LTD company, LTD company seems like a lot of hassle but I don’t know what to do’
Let me say it here – I am NOT a financial advisor, accountant or tax advisor. What I say is purely from my own experience and I will always advise you seek professional advice. Let me say it again – this is NOT financial or tax advise, this is just MY EXPERIENCE. I would recommend people start a LTD company rather than invest in their own name but like always speak to a good accountant and tell them your situation.
Starting off in your Personal Name
Many people start in a personal name, learn more about investing and then start a LTD company. That’s what I did. I’m not saying that’s the best way to do it but the tax goal posts were different back then in 2007. There was no ‘section 24’ which meant my mortgage payments could be offset as an expense (and rightly so). Nowadays all the rent we receive is taxed – YAY!
I have 3 properties in my personal name and if I could turn back time I would indeed have purchased right away in a LTD company. At some point I will try to shift them into a new LTD company but I need to do it the most tax efficient way as possible, of course I understand that I need to pay tax but I don’t want to pay any more tax than I need to. Amazon and Google, billion-dollar companies seem to do it legally so Im sure a little old property investor like me should be able to.
Lower Tax bill usually
The main reason people purchase through a LTD company is that you will pay a lower tax rate. Currently at the time of writing the corporation tax in the UK is 19-25% dependant on the level of your turnover. I expect that if you have a handful of BTL properties you will be making less than £50k pa in profit so you will pay 19% tax.
Personal income tax is 20-40% so if all your properties are in your name you will pay more in tax. Due to the fantastic ‘Section 24’ 1 of the properties in my name has a rent of £1100pcm and according to the tax man that’s £1100 PURE PROFIT (£13’200 pa) – they do not take into consideration the £600pcm mortgage. So be very careful of just buying in your own name.
Some investors purchase properties in their spouse name who earns less than them so there is less tax to pay but rather than go through all that you may as well set up a LTD company.
Setting up a LTD company is hard isn’t it?
No it isn’t. You can make property investing as easy or as hard as you like. One of the concepts I teach my mentees is ‘who not how’. If you want to sell a house you don’t carry out the legal work, you employ a solicitor. If you are having open heart surgery you have a highly trained person doing the surgery. Always think ‘who’ do I get to do this, not ‘how’ do I do this.
I have set up companies before and I just ask my accountant to do it, I get a confirmation email and that’s it. Ofcourse there is a cost and you can do it yourself but I value my time and I want to make sure it’s all set up properly. Please also make sure that your registered office is the accountants office. Back in 2007 I had everything sent to my home address and trust me this is not best practice, it seemed like every day there was a letter landing on my doorstep.
Trading History
When I first started out I was obsessed about not having any trading history, as a result I wrongly delayed setting up a proper business account and LTD company. This was backward thinking. There are companies out there who earn money by lending you money. You can set up a LTD company and apply for a mortgage the day after. Don’t say that you cant get a mortgage because you havent got 12 months worth of accounts.
The best accountants
I would always advice going to an accountant who invest in property themselves, I’m not talking 1 BTL, I’m talking about somebody who has a growing portfolio and can guide you through the murky waters. The more specialist they are in property the better it will be for you. Yes you will pay them more but they should save you more in expeneses. When I first set up my LTD company I wrongly just went to an accountant who did my friends accounts – please don’t do that.
In summary – in my experience setting up a LTD company has been the best route. Personal name can be easier but there may be higher tax implications further down the line. Seek professional advice from your accountant. When you reach 5-6 properties you may want to start another company and put further properties in there, again I’M NOT AN ACCOUNTANT OR TAX ADVISOR SO SPEAK TO AN ACCOUNTANT.
If you want to grow your knowledge, portfolio and wealth then get in touch. I do mentor a select few people but Im a property investor 1st and a mentor 2nd. If you are serious about growth then get intouch.
Thanks for reading.
Dervish Dervish
p.s. head over to my You Tube channel and hit the subscribe button, there is some great content on there for you; @Dervish_Dervish