Jul

BTL company vs personal calculator

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Property118

BTL company vs personal calculator

One of the most common questions landlords ask is whether they would pay less tax by owning their rental properties through a limited company instead of personally.

It is an understandable question, but it is also one that is surprisingly difficult to answer properly without running the numbers.

The answer depends on far more than simply comparing Income Tax with Corporation Tax. Your existing income, mortgage interest, ownership structure, finance costs, the number of associated companies and whether profits are retained or extracted can each make a significant difference.

The Property118 Buy-to-Let Tax Comparison Calculator also considers salary optimisation, including the tapering of the Personal Allowance once adjusted income exceeds £100,000.

Why salary optimisation matters

Many company ownership comparisons assume that profits are either retained in the company or extracted entirely as dividends. In practice, that may not produce the most efficient result.

Where a landlord company has working directors, a commercially justifiable salary may reduce Corporation Tax and make better use of available Personal Allowances. The optimum figure will depend on existing income, National Insurance thresholds, employer National Insurance, payroll costs and whether the individual is already above the Personal Allowance taper threshold.

The £100,000 Personal Allowance trap

The Property118 calculator also takes account of the rule that reduces the Personal Allowance by £1 for every £2 of adjusted income above £100,000. By the time adjusted income reaches £125,140, the Personal Allowance is fully withdrawn.

This can be particularly important for landlords because rental profits, salary and dividends can all affect the overall income position. A structure that looks efficient at first glance may become less attractive once the lost Personal Allowance is properly factored in.

What the calculator considers

The calculator allows users to enter other UK taxable income, gross rent, mortgage interest, non-finance costs, ownership shares, associated companies, tax resident status, and company profit extraction preferences.

It then compares personal ownership with company ownership before and after salary optimisation. The results include Income Tax, Corporation Tax, employer and employee National Insurance, Section 24 finance cost relief, company retained profit and a simple ten-year straight-line comparison.

Why the result is still only a starting point

The calculator is intended to provide a useful screening tool, not a formal tax calculation or recommendation.

It does not deal with every possible issue, including SDLT, CGT, ATED, Employment Allowance, Scottish income tax, pension contributions, student loans, Gift Aid, Marriage Allowance, losses brought forward or detailed anti-avoidance considerations.

It also assumes that any salary paid by a company is commercially justifiable. That is important because salary should reflect real work carried out for the company and should not be treated as a purely mechanical tax-saving entry.

Use the calculator as the beginning of the conversation

If the calculator shows a significant difference between personal and company ownership, that does not automatically mean incorporation is the right answer.

Equally, even if the annual tax difference appears modest, incorporation may still make commercial sense for reasons such as succession planning, refinancing flexibility, liability management, business continuity, retirement planning and future portfolio growth.

Tax is only one part of the decision. The wider commercial objectives are often just as important.

BOOK YOUR CONSULTATION TODAY

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Jul

Political uncertainty doesn’t have to mean property uncertainty – sell on your terms

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Political uncertainty doesn’t have to mean property uncertainty – sell on your terms

News surrounding Keir Starmer’s resignation and speculation over whether Andy Burnham could become the next Prime Minister have left many landlords asking what comes next.

Discussions about Andy Burnham’s previously proposed land tax paid by property owners rather than tenants that could see landlords paying 0.96% of their property value annually have reignited concerns across the private rented sector, with some landlords questioning whether now is the right time to reduce their portfolios or leave the market altogether.

For a landlord with a property worth £250,000, a land tax would mean an additional annual tax bill of £2,400 and, under the new rules introduced by the Renters’ Rights Act, strict limitations of their ability to pass on the charges.

After years of tax changes, selective licensing, the Renters’ Rights Act and increasing compliance costs, many landlords are no longer waiting to see what happens next.

As one Property 118 landlord commented “This land tax on its own has pushed me over the edge which will be worsened by a simultaneous rent freeze. After 27 years, I’m out and have started planning my exit now.”

The problem is that many tenanted properties can be difficult to sell through traditional estate agents, leaving landlords feeling trapped when they simply want a straightforward exit.

A Derby landlord approached us looking for a fast, certain sale of multiple properties. He wanted a clear route to a clean exit. He knew he wanted to sell without having to wait for his tenants to leave or having to evict them and run several empty properties indefinitely while he waited to find buyers and for the property sales to complete.

All he needed to do after that was choose the best way to sell his properties for the highest price.

Estate agents take too long and he didn’t want to sell in dribs and drabs. Auction houses are fast and certain but the sale price they typically achieve is too low because only cash buyers can bid.

The property buying companies he spoke to offered too little and most fast sale companies charge too much in fees and costs, don’t get involved in solving any problems or confirm their offer in writing at the start of the sale leaving him worried that they would drop their prices further down the road.

He chose us because we do more to make sure we get the best price possible for the properties we sell and our offers are locked in from the start.

By securing full tenant cooperation, we protect the value of the properties we sell by allowing us to position the sale landlord-to-landlord and owner occupiers who push other offers up through competition.

The result speaks for itself. We sold four of the landlord’s six properties to a cash buyer with no searches and no survey, avoiding what could have been a nine-month court delay. Even better, the final price came in £30,000 higher than is typical for the investor market.

Another landlord, Ali, shared his experience after struggling to find an agent willing to help with a tenanted property.

“Many other agents were not interested, as I had a tenant in situ, but these guys reassured me they would sell this place and contribute towards costs to help make this transaction as smooth as possible.”

He later described Landlord Sales Agency as a “5-star” company that “goes above and beyond to help.”

We understand the challenges landlords face because Landlord Sales Agency was founded by landlords for landlords.

Our team specialises in selling tenanted properties, problem properties and portfolios that can often prove difficult to sell through traditional routes.

Whether you own one property or a large portfolio, we can help you explore your options. We specialise in selling properties in all conditions, including those affected by disrepair, enforcement action, costly maintenance issues or long-standing tenants.

Or whether you have pristine properties in excellent condition and just want to sell for the best prices without having to wait for tenants to leave or having to evict them, we can help. No matter whether you’re selling property with a single tenant, with multiple tenants, or even complicated sub-tenancies we can make sure you get the best price possible for your property.

Whilst landlords still need to be realistic on price, we typically achieve between 85% and 90% of vacant possession value. Our specialist approach often delivers significantly better results than auctions while providing greater speed, certainty and flexibility than many traditional sales methods.

Whatever happens politically over the coming months, landlords still have choices – but being ready for the next challenge is key. Do not wait until new taxes or further regulations arrive before reviewing your portfolio.

Whether you want to sell one property, several, or your entire portfolio, Landlord Sales Agency can help you achieve a fast, hassle-free sale while your properties remain tenanted.

If you’re wondering whether now is the right time to sell, there is no obligation and nothing to lose by having a confidential conversation. You may be surprised at what your portfolio is worth and just how straightforward the process can be.

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Jul

Government insists courts can cope with Renters’ Rights Act

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Property118

Government insists courts can cope with Renters’ Rights Act

The government claims the courts have “sufficient capacity to manage the impact of the Renters’ Rights Act”.

The act came into force on 1 May this year and, with the abolition of Section 21, landlords must now rely on Section 8 notices and specific grounds to regain possession.

As previously reported by Property118, industry experts have warned that the act could overwhelm the court system.

Increased sitting days to deal with demand

In a written Parliamentary question, Labour MP Bambos Charalambous asked: “What assessment has the government made of the potential merits of additional County Court sitting hours to deal with Section 8 possession claims following the commencement of the Renters’ Rights Act?”

Justice Minister Sarah Sackman said the government had increased the number of sitting days to deal with demand.

She said: “The Ministry of Justice (including its executive agency, His Majesty’s Courts and Tribunals Service) has worked closely with the Ministry of Housing, Communities and Local Government to ensure that the courts have sufficient capacity to manage the impact of the Renters’ Rights Act, including the increase in Section 8 claims following its commencement.

“This year, over 80,000 sitting days were committed to the civil jurisdiction. This is a significant increase and recognises the importance of the civil jurisdiction.”

Landlords having to wait weeks to regain possession

However, as previously reported by Property118, the court backlog shows no sign of slowing down.

The National Residential Landlords Association (NRLA) pointed out that landlords are having to wait weeks for court hearings to regain possession of their properties.

According to government statistics, it now takes an average of over 34 weeks between a landlord making a claim to the courts to possess a property under the grounds-based Section 8 process and a property being repossessed, the highest level in four years.

The post Government insists courts can cope with Renters’ Rights Act appeared first on Property118.

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Jul

Commonhold reform: With great power comes great responsibility

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Commonhold reform: With great power comes great responsibility

There has been a huge amount in the press about the “feudal” system of leasehold and how the government’s revitalised commonhold will fix all of the problems associated with long leasehold ownership.

But will those buying into or converting to commonhold find that the old adage “be careful what you wish for” applies to them?

The perception is that commonhold will mean transferring power and control over the building and maintenance costs in the hands of flat owners (who will be called “unit holders” under the new regime) and no external third-party landlord spending the unit holders’ money on works that the unit holders feel are not needed or are too expensive. But what does that power and control mean?

According to the HCLG Report it is intended that unit holders will have rights to vote on decisions affecting the building such as:

changes to the Commonhold Community Statement (CCS) which governs the management of the commonhold;
to appoint a managing agent; and
to approve the commonhold’s annual budget to maintain the common parts (which unit holders will pay as ‘commonhold contributions’)

However, the detail of these rights is not contained in the Commonhold and Leasehold Reform Bill (CLRB) and will be implemented via regulations.

The HCLG pre-legislative scrutiny of the draft Commonhold and Leasehold Reform Bill promotes the view that the interests of the unit holders and the commonhold association (the body that has responsibility for running the building in accordance with the CCS) will always be aligned. In my view, this is not the case.

The mere fact that someone lives in a commonhold building doesn’t mean that they have access to unlimited funds to pay for repairs and maintenance to the building and that they will act in a magnanimous way when it comes to repairs which they believe do not directly benefit them or are too expensive.

Nor are all unit holders likely to be happy to agree to allow another unit holder to keep a dog or knock down a structural wall. It is, of course, obvious that there will be times when the interests of the individual unit holders and the commonhold association do not align.

With this in mind, the CLRB provides for a new dispute resolution process and for a commonhold association to apply to the court for an order requiring the sale of a commonhold unit or leasehold interest in a commonhold unit, due to default in payment of commonhold contributions by the unit holder.

Unfortunately, according to the guide to the Bill the dispute resolution provisions will also be implemented via regulations.

And what of the cost of taking enforcement action against unit holders who refuse to pay or breach the terms of the commonhold community statement or of defending a complaint against the commonhold association?

The guide to the Bill confirms that the CLRB will introduce a provision where, if a unit holder, tenant, or the commonhold association is found to have broken the rules, the tribunal can order them to pay other owners for any costs caused by their actions.

The commonhold association may also require an indemnity from a unit-holder or a tenant of a commonhold unit in respect of costs arising from the breach of a legal obligation (whether statutory or not) but again, the devil will be in the detail.

As the above demonstrates, whilst commonhold presents an opportunity for greater control, this control comes with financial and legal responsibilities and a risk that ensuring that the building is well managed and maintained will result in unit holders having to pay the costs of enforcement upfront in the hope that they will eventually be able to recover the costs from the offending unit holders.

Lucy Riley is a Legal Director at Nockolds and a member of ALEP (Association of Leasehold Enfranchisement Practitioners).

The post Commonhold reform: With great power comes great responsibility appeared first on Property118.

View Full Article: Commonhold reform: With great power comes great responsibility

BTL company vs personal calculator

Why salary optimisation matters

The £100,000 Personal Allowance trap

What the calculator considers

Why the result is still only a starting point

Use the calculator as the beginning of the conversation

BOOK YOUR CONSULTATION TODAY

BOOK YOUR CONSULTATION TODAY

Political uncertainty doesn’t have to mean property uncertainty – sell on your terms

Government insists courts can cope with Renters’ Rights Act

Increased sitting days to deal with demand

Landlords having to wait weeks to regain possession

Commonhold reform: With great power comes great responsibility

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