so let's work on getting your properties
from your personal name over here into
your
limited company in this video i'm going
to be breaking down how and why you
should be doing this and how
you might be leaving thousands of pounds
on the table
let's jump straight
[Music]
so why people considering this in the
first place well it all started in april
2020 where everything started to get
phased in and the full facing was then
where everyone started paying different
types of tax on their personal income
through their buy to let property
portfolio
so before these changes came in um
anyone that had an interest only in
their personal name you had massive tax
benefits it was
it was pretty good okay and essentially
the profit genuine profit that you were
left with at the end is what you were
taxed on
however because of all of the changes
they've decided the government's decided
that interest rate isn't a legitimal
legitimate expense to the company you
had tax write-offs that
were no longer available for a lot of us
it made it worthwhile to start thinking
about incorporating
and instead of building a portfolio in
the personal name
starting to build it in a limited
company moving forwards
before i deep dive into this i think
it's really important to say i'm not a
financial advisor i'm not a tax
accountant and i've actually done quite
a bit of research around this just to
make sure the information is accurate
so the three people that i've really
looked into is thp chartered accountants
money donor and mortgages for businesses
so if you want to find out more about
them
go and check them out and a lot of the
information i'm sharing here
has been verified through those sources
so first of all
something i really like to look at is
just because something makes sense
moving forward does it mean it makes
sense for today and the answer is
it depends because should you do this in
the first place well
honestly you need to consider a few
things and
linkedin with this what actual costs are
involved with this
so first of all you've got some tax
implications right
first of all you've got stamp
you might have capital gains tax which
is cgt
you might have the taxes early
redemption
charges and you're going to have some
fees in general and what you need to be
looking at with this
is linking in your personal situation
and at the end of this video what i'll
do is i'll link to a previous video
that i think will add value to you where
it's going through
should you be in a personal name or a
limited company in the first place and
it breaks it down in much more detail
the reason this is important is you need
to look at your personal finances so for
example if you're a 20
taxpayer there's probably no need to
incorporate the current properties that
you've got
again not a financial advisor i don't
know your personal circumstances
if you're a 40 taxpayer it may or may
not be worthwhile
in general from the research and
analysis that i've found
i think anything less than two to four
properties
is not going to make a huge difference
and i think it's just better keeping it
in your personal name
depending on your situation and when you
get much above six
it's almost definitely worth thinking
about incorporation
but let's look at this in some more
detail so
when somebody says transferring a
property from your personal name to your
business name
it's not a very accurate way to describe
it if i'm completely honest
so there are some smart jiggery pokery
like
putting it into a limited liability
partnership which is taxed on personal
income
and then leaving it for two years and
then incorporating for that
it's a little bit too complex for me and
i've not seen anyone do it successfully
and i think it will get
looked at because when you look at tax
something to
factor in is there has to be a
legitimate business reason for doing
things okay
you cannot create a in a lot of
situations a
structure purely just to pay less tax
okay so
if you've got the hmrc looking at that
and it's like well what's your
legitimate reason for going into a
partnership
you need a story to tell within that but
that's for another video
for going straight into a limited
company it's not really a transfer it's
another purchase
what you need to understand is that you
as an individual
is different to you as a limited company
okay and what i mean by that is you are
not your limited company so when
somebody says
i owe next amount of property when i
talk about the property that i own
actually i only own like a handful in my
personal name the rest are in different
limited companies
so technically i don't own them okay i'm
gonna say that again i don't own those
properties
a company owns those properties and i
own the company is not the same thing
and that's really important to
understand
and that's why the tax situation is
different because if i owned the
properties there'd be a different tax um
situation where the tax is
realized or the profit is realized i
would have to pay tax
so a better way of saying it is your
company is
purchasing the property from you
with that in mind you're going to have
stamp duty which obviously remember as a
buy to let investor you've got the 3
surcharge on that capital gains tax i'm
going to talk about that in a little bit
do you need to pay it or not well it
really depends and i'll break that down
again not an accountant
but if you're a 40 tax owner you're
going to be paying 28
capital gains on that early redemption
charges can be a couple of thousand
pounds
but it will be obviously check out your
current mortgage and then fees
so i think you're going to have around 1
500 pounds in solicitor and broker fees
as a minimum so the reason why it's like
well should i do this is this is what
you need to be analyzing right now
so let's say i bought a property
let's go through a worked example here
if i bought this property over here
my famous artwork coming out and let's
say
i purchased it for a hundred thousand
pounds
however many years ago when you sell a
property
you have to sell it at a fair value
okay so within reason i mean being
completely honest you could probably get
it done at 100
000 and justify that but let's be let's
say it's worth 120
000 now so you've got 120 000 pound
purchase well
what's your net gain on that 20 000
pounds right
so if you then incorporated this
into a limited company ltd
it's going to be purchased for that 120
and then you're gonna have some fees to
put on that okay so let me just draw
that up a little bit
so what fees are we going to have well
first of all stamp duty
stamp duty on 120 000
is going to be at three percent which is
going to be 3600
you're going to have capital gains in
this scenario and i'll talk about that
more
so you've got 20 000 pound capital gains
at 28 however you don't pay it on that
full amount you've got a capital gains
allowance of 12
300 pounds at the time of making this
let's assume you've not taken advantage
of that so you're actually paying 28
on 7700 which is 2156
which is your cgt capital gains tax
then you've got your fees which we said
we're going to be 1500. now again
this is going to be very sort of random
conservative numbers okay
obviously if we actually broke these
down there might be a different number
that comes out but here's where it's
important
so if we add those up we've got three
four five
six seven one hundred seven two five six
so seven thousand two hundred and fifty
six pounds
of costs there cost implications now
what you need to think about is
how much is the profit going to be
affected because let's assume your
net is 250 let's say by incorporating
are you putting in a limited company
you're getting another 100 pounds okay
very rough numbers
but if you've got 250 here then you're
getting your tax and 250 there let's
assume you're making another 100
pounds per month in your limited company
because of the tax efficiencies
well that's great you'd obviously do it
right well
i don't know for sure because if you've
got it over there
and you're making 100 that is 1200
per year okay great but
how many one thousand two hundreds go
into
seven thousand two hundred well about
six right
so six times
that is seven thousand two hundred so
pretty spot on
so it's going to take me six years
in order to actually get that money back
oh and by the way you've got end of year
accounts to do your accountancy bills
are going to be higher
so it's probably more like seven years
in order to pay that back
is that worthwhile well in my opinion
absolutely yes it is if you think about
that as an investment and this is how i
like thinking about things
is it worthwhile well put it this way if
i
did something and invested 7
200 and it's going to take me seven
years to get that back
what percentage return on that is that
is that on my money
i think that's about 14 7 times 14
is 98 so it's actually more than a 14
return on my investment is that a good
return absolutely
but the other problem that comes in for
me is the risk of change
so the government is changing their mind
all the bloody
time right now so what happens is so if
i incorporate and then they
change the layout again i can't imagine
it changing dramatically
but there are things to consider what if
accountancy
fees go what if the structure of it gets
more complicated well if they do
increase cooperation tax from 19
to that 25 which is what they're
proposing how does that
impact things so the way that i like
doing this is getting a spreadsheet
together
geeking out on it and just playing
around with this you know how much is it
going to impact me what's it going to
cost me
and much more so how do you actually do
this well
there's two key ways if you choose to go
down this route
one of them i have not done personally
it's just from
talking to a lot of people in the
property world but i want to share what
they've experienced
personally i've not done this so i'm not
recommending it in any way shape or form
and it's so important to get a strategic
tax advisor
to guide you through this process so
what a lot of people are doing or
certainly looking into
these are people that have got a group
of properties also known as a portfolio
is they are putting it into an llp
now an llp obviously it's got its own
tax implications
i've been looking into llps more because
i want to get some cool cars
and it's much more tax efficient in an
llp
but this limited liability partnership
first of all notice the word
partnership you need to actually own
that with somebody else you can't have
an llp on your own
you can incorporate it in there and
because it's in a
corporate structure that protects it
where you can incorporate to a limited
company which i'll get to in a moment
um but also you're taxed as an
individual so you don't get any
any initial tax benefit from that but
apparently
apparently what you can do and i don't
know the ins and outs of this and i want
to be completely up front
you can then plus two years after having
it in that and again you need a
legitimate reason
you can then transfer it to a limited
company
and what you want to do is set up an ltd
you can own this on your own
more than likely you'll probably have to
own it with the same partner
and then maybe divest that partner or
maybe that's part of your story that
your partner's leaving you and you want
to incorporate in there i don't know but
your limited company
get the right sick code which is your
security code
for the business so people understand
the right tax code and apparently
obviously there'll be some accounting
fees
but you won't have to purchase the
property from there to there or anything
like that
instead what you do is something called
porting the mortgage
so when you do a mortgage port um
porting a mortgage is normally is when
you upgrade your house
say you've got a lender say it's virgin
money and i go and buy another house
instead of going to get another house
i'm happy putting in the added equity
and i just say to virgin look i'm moving
into this house could you just port it
over to that property
there's some fees involved and you can
do that that is how it would work in
this structure
theoretically okay and it's definitely
something to look at
if you've got a heavy portfolio in your
personal name
for me personally i don't have a massive
portfolio in my personal name i've only
got a small handful
so i'm not going to bother looking at
this structure because i also i love the
return on on my investment
i love mitigating my tax but i also
value the return on my time
and me investing a load of time into
this isn't going to be a good return for
me
on three or four properties but it might
be for you and once i find somebody that
i know is the best at doing this
or if you've got any recommendations let
me know in the comments then i'll give
some advice on where to go for that
option number two which is far more
simple but there are expenses involved
it's just doing a straight transfer and
we don't really like that word
into your limited company
okay and this is where you just don't
need
to over complicate it at all
my house is just get worse and worse
they really do so you don't need to over
complicate this
think about it as a separate entity okay
so if somebody else purchased your
property what would they do
if you were to purchase another property
from now what would you do
and it's the exact same so this limited
company represents
this guy this person represents
you look how happy you are that you're
sending your property over
and your company's happy too because
you're going to save on
tax which is great everyone's happy
yay okay so it's just going to be a
normal purchase
so you get in touch with your mortgage
broker
they're gonna understand your situation
and be able to give you some advice on
how to structure this
you're gonna make sure you've got your
proof of funds your proof of id
to move forward and you're going to show
a credit file
using experian or something like that
then you're going to go in and do the
exact
same purchase that you would do normally
this is pretty annoying because you've
got solicitor fees on this side
solicitor fee is on that
side and you're doing a normal purchase
that's as simple as it is
people massively over complicate this
but there are a couple of frequently
asked questions that i want to make sure
i'm answering for you
so there's two key questions that i get
quite a lot number one
is can't i just sell it to myself for a
pound
or can't i just sell it cheap the answer
is no
the answer is no you can't just do that
hmrc are a little bit more savvy than
that and obviously you'd be shocked at
what capital gains tax you have to pay
so for example anything above 6 000
pounds
if you give to somebody technically
there's going to be some form of capital
gains tax on that
even if you didn't get paid for it which
is insane as i'm not going into it right
now because i'm going to sulk mode
but you can't just decide oh yeah i'm
going to sell this for a pound
because technically there's always a
capital gain at some point
so if you sold that to your company for
a pound and then they sold it for 200
000 at some point that's a huge capital
gains tax that you're gonna pay right
so no it has to be a fair value or
the open market value now don't get me
wrong that can definitely be manipulated
okay
so you know if it's worth 120 000 you
can definitely justify selling it for
what you bought it for
if within reason if you bought it
donkeys ago at 20 grand
you're gonna have an issue whereas if
you bought it for a hundred thousand a
few years back and now it's worth 120
you can perfectly justify
purchasing the property at 100 000 and
paying capital gains tax on
that level the next thing is
do you need to pay capital gains tax and
the answer is it depends
again not an advisor not a tax
accountant
so in typically yes you do need to do
this but there was a
case that was really pertinent to change
of law so
the way that it works with law and tax
is when there's a case where there's
like a
jamie verse hmrc or york versus hmrc and
i kick their asses i
would right um then that sets case
precedence and then you've got an
argument that you constantly link back
to when somebody's done that before
and in 2013 there was a really good
argument of not paying capital gains tax
because they got business incorporation
release
relief and this is on the section 162
okay so section 162 look into it
and it's all about and the pivotal part
of that case was
are you actually active in that business
so
if you are active there is a way to not
pay
any capital gains in there because
you're just incorporating it into a
business function
so for example if you spend this person
spent
20 hours a week on their property
portfolio so they would do works they'd
manage their lettings they'd collect
rent things like that
so if you've got a legitimate business
angle within that like you are actually
doing property full time
or you're managing the lettings then i
think there's a good chance that you'll
be able to argue section 162
capital gains relief through the
incorporations relief
okay capital gains mitigation through
the the incorporation relief
however if you've just got a few
properties
you know five six properties there's a
letting agent involved you don't get
involved at all
personally and again not a tax advisor
personally i think you would be liable
and i think you'd really struggle
making an argument for that but let me
know if you've done it let me know in
the comments if you've had
actually tried that and what result
you've got so the question is
what would i do okay what would i do in
my situation
and why am i doing that so with my
personal circumstance people go you must
be a 40
tax owner right well the answer is no
i'm not and most business owners
aren't either and it's not to say
they're not earning enough to pay that
40 percent it's the fact that they
structure their affairs in a very
strategic way
typically a very low salary and then you
get dividends within that
i personally open book i pay myself 25
000
as an employee of one of the companies
so that i can get mortgages and things
like that
but once i sort of sorted all of those
bits out i'll go down to the lowest
possible which i think is like 10
000 a year and the rest will be in
dividends right so i'm always going to
be strategic
not to pay myself above that level so if
i get a buy to let in my personal name
again
it will bump me into that level and i
don't want to do it
so what am i doing well i don't have a
load of property in my personal name as
i said so personally the way it works
now
i'm just going to suffer it because i
don't think the cost implications are
going to be
impactful enough for the ones i've got
in my personal name to warrant
transfer into a limited company right
now so what i've got in my personal
company
personal name sorry i'm just going to
leave there for now
what am i going to do moving forward is
i'm purchasing everything in buy to let
limited companies
now this was a real pain in the ass
because when people started a few years
ago doing this
there weren't really many lenders doing
it but actually
as it's become the norm and i'd say i
don't know the percentage but it would
shock me if it's anything less than like
70 75 percent of people now
that are purchasing buy to let property
it's going to be in their business name
now
and so lenders have adapted to that and
lenders like lawyers have started
getting into the buy to let market
themselves which is quite
telling so i've noticed the spread and
the increased cost of only being about
0.5
extra by having it in a limited company
so what i'm going to be doing
is building that portfolio now in
different limited companies
depending on the structure who i'm
buying it with if i'm buying on my own
etc but all of them will be in limited
companies moving forward
and then what i'm going to look to do
with my personal portfolio
as i'm developing and times are changing
i might want to pay myself a bit more
and just suffer the tax a little
is i'll probably start incorporating
those
into the business one at a time and the
reason i'm going to do this is the way i
structure my other investments i don't
ever
realize any capital gains tax in my
personal name
which means i've got a 12 300 pounds
allowance
for um that capital gains so i will make
sure to incorporate one
per year in each capital uh in each tax
year
to make sure i'm not paying any uh
capital gains tax
therefore mitigating any sort of fees or
cost implications of transferring it
over so
hopefully that's been helpful let me
know what you thought of the video let
me know what you're going to do have you
got financial advice what's your
accountant advise you because
this is a learning stream for both of us
and i'd love to understand how
other people are doing it and by the way
if you want more information on this and
understanding the key differences
between the tax implications of personal
and limited company then head over to
this video now but just before you do
hit the like button and subscribe and
let me know what you thought in the
comments
and i'll see you in the next video