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Make All Btls Work Through A Real Company

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We have had plenty of threads on here about whether or not BTL is a real business and the tax advantages it gets, so simple solution. Make all BTLs operate through a ltd. company. This serves the following:

  • it is clearly a business so there can be no confusion over it's tax status, e.g. whether or not it can offset income against borrowing costs
  • it will be properly accounted for - anual accounts would be prepared and visable to everyone, including the taxman
  • the correct amount of tax will be paid
  • the lenders will know it is a BTL
  • tenants rights can be applied correctly

This seems a pretty straight forward way of sorting all of it's ills or have I missed something?

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In the event of being unable to cover the mortage wouldn't the company just fold and the owner could walk away?

ie, it wouldn't put the business owner's home at risk.

For most people on this site wouldn't that be a bad thing?

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In the event of being unable to cover the mortage wouldn't the company just fold and the owner could walk away?

ie, it wouldn't put the business owner's home at risk.

For most people on this site wouldn't that be a bad thing?

Banks wouldn't lend to a private company on such favourable terms as they will to an individual - or would demand personal guarantees.

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Guest Yeahbutnocrash

Could be a way of ensuring people are doing it properly regarding tax etc

I'm just wondering where you'd draw the line - Do you include those just letting one room or one property they inherited or moved from for work reasons?

Perhaps it could apply to anyone with more than one btl or anyone with btl loans above a certain amount

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Do most BTL'ers currently even pay tax?

depends on when they bought and if they borrowed - the argument I have is against being able to offset interest on borrowing against income - a 'proper' (for the sake of argument) business is allowed to do this as indeed is a BTL - in general a private investor can't - the private BTLer can get that business advantage of income against borrowing, yet doesn't have to keep correct accounts and declares everything as an investment on their personal tax return - all i am trying to do is suggest a way of clearing the ambiguity i.e. work as a business, declare your income and costs as a business, get the business benefits etc.

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Why should just BTL landlords be forced to operate through a limited company? Why not plumbers, carpenters, electicians. Incorporation isn't for everyone. Are you suggesting it should be illegal to operate as a sole proprietor or partnership?

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Why should just BTL landlords be forced to operate through a limited company? Why not plumbers, carpenters, electicians. Incorporation isn't for everyone. Are you suggesting it should be illegal to operate as a sole proprietor or partnership?

i don't think there is any confusion over whether or not a plumber etc. is a business or a private investor whereas with BTL there is

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i'm not sure if this has been covered elsewhere, but I believe that business assets have very different capital gains tax treatment versus individuals, in fact they are much more favourable. Assuming that most BTLers have been in for property price growth rather than income from rent, wouldn't this idea just hand them more profit from house price growth? More profit = more money to invest and more demand to buy more houses...

I'm not an expert on business tax though, just what I have read over time.

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i'm not sure if this has been covered elsewhere, but I believe that business assets have very different capital gains tax treatment versus individuals, in fact they are much more favourable. Assuming that most BTLers have been in for property price growth rather than income from rent, wouldn't this idea just hand them more profit from house price growth? More profit = more money to invest and more demand to buy more houses...

I'm not an expert on business tax though, just what I have read over time.

they get taper relief over time anyway - my main contention is that they get the business benefit of offsetting interest they pay on borrowings against income - this is a business benefit that the vast majority of other private investments don't get yet at the same time they declare their tax as a personal investment - the simple way to eliminate the discrepancy is make them become a business

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Guest Yeahbutnocrash
depends on when they bought and if they borrowed - the argument I have is against being able to offset interest on borrowing against income - a 'proper' (for the sake of argument) business is allowed to do this as indeed is a BTL - in general a private investor can't - the private BTLer can get that business advantage of income against borrowing, yet doesn't have to keep correct accounts and declares everything as an investment on their personal tax return - all i am trying to do is suggest a way of clearing the ambiguity i.e. work as a business, declare your income and costs as a business, get the business benefits etc.
There are actually additional tax return pages for property which should be completed by btlers - It's not simply entered as an 'investment'

And if a btler takes a certain amount in rent (I think it's about 18k pa) then they have to complete a more detailed return including each individual expense

Also the tax notes clearly state that btl is treated as a business

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Guest Yeahbutnocrash
they get taper relief over time anyway - my main contention is that they get the business benefit of offsetting interest they pay on borrowings against income - this is a business benefit that the vast majority of other private investments don't get yet at the same time they declare their tax as a personal investment - the simple way to eliminate the discrepancy is make them become a business

IMO btl is a business as it has tangible assets owned by the individual, provides a service and to an extent (as long as a property brings in rent) has a return and turnover

Pure investment does not require any management of assets etc by the individual and a return is not so guaranteed. Neither is a direct service provided

Hope this helps

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If I were to borrow money to invest in a BTL, I can claim tax relief on the interest.

Not having much investment experience, I'd like to know how tax relief applies to other situations:

If I were to borrow money to invest in shares, could I claim tax relief on the interest?

If I were to borrow money to invest in an Andy Warhol, could I claim tax relief on the interest?

If I were to borrow money to have a punt on invest in the 4.30 at Newmarket, could I claim tax relief on the interest?

My inexpert guess is the answer to the above examples is 'NO'. If I'm wrong, I'd be left to ponder what a strange world we're living in. If my guess is right, why should BTL be treated any differently?

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IMO btl is a business as it has tangible assets owned by the individual, provides a service and to an extent (as long as a property brings in rent) has a return and turnover

Pure investment does not require any management of assets etc by the individual and a return is not so guaranteed. Neither is a direct service provided

Hope this helps

i would argue i have to manage my share portfolio and don't get to offset dividend income against borrowing costs

as it happens, i agree with you, it should be a business, however it is declared on a personal tax return as investment, hence the thread

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they get taper relief over time anyway - my main contention is that they get the business benefit of offsetting interest they pay on borrowings against income - this is a business benefit that the vast majority of other private investments don't get yet at the same time they declare their tax as a personal investment - the simple way to eliminate the discrepancy is make them become a business

the taper relief is completely different for company assets veruss individual assets. I would be interested to see the a comparison of offsetting the interest against tax (current sitn) and having much lower cgt to pay when the property is eventually sold (business)...my gut feel is that the cgt advantage would be better...so whilst you are right that they currently get a business benefit, if BTLer would be better off a company then that would fuel more btl.

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Guest Yeahbutnocrash
i would argue i have to manage my share portfolio and don't get to offset dividend income against borrowing costs

as it happens, i agree with you, it should be a business, however it is declared on a personal tax return as investment, hence the thread

I did answer this point by responding to one of your previous posts as follows:

There are actually additional tax return pages for property which should be completed by btlers - It is not simply entered as an 'investment' as you are suggesting

And if a btler takes a certain amount in rent (I think it's about 18k pa) then they have to complete a more detailed return including each individual expense

Also the tax notes clearly state that btl is treated as a business for tax purposes

I agree you have to manage your share portfolio but you would only be doing that on behalf of yourself. You aren't providing a service to another party

Edited by Yeahbutnocrash

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Guest Yeahbutnocrash
If I were to borrow money to invest in a BTL, I can claim tax relief on the interest.

Not having much investment experience, I'd like to know how tax relief applies to other situations:

If I were to borrow money to invest in shares, could I claim tax relief on the interest?

If I were to borrow money to invest in an Andy Warhol, could I claim tax relief on the interest?

If I were to borrow money to have a punt on invest in the 4.30 at Newmarket, could I claim tax relief on the interest?

My inexpert guess is the answer to the above examples is 'NO'. If I'm wrong, I'd be left to ponder what a strange world we're living in. If my guess is right, why should BTL be treated any differently?

Seems I was typing the answer about BTL as you were typing the question if you look at my post immediately prior to yours

Basically BTL is a business as opposed to pure investment or gambling so as far as I know you cant claim tax relief for these other activities

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I think (correct me if I'm wrong) that in Scotland all property that is let/rented has to be registered with the local council.

It is against the law not to inform the council. As opposed to forcing the BTL brigade to be treated differently as a business, they have forced the business of renting out property (residential at least) to be registered.

Of course, whether or not this is enforced is a different matter. If it were to be enforced along with big fines for not registering, it would go some way to providing the govt with a reliable way to track down any tax dodgers.

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I have some btl so will probably get a heap of abuse for this post, but I am completely confused by all the 'tax dodging' people on here seem to think happens. If you have btl's, you are expected to complete a full tax form and keep accounts - it is a form available with the self assessment tax returns.

Most landlords only have a couple of flats. Lets say they bought a flat for £100000, 75% loan @ 6% and get £500pcm rent for furnished flat.

Income: £6000

Less Interest: £4500

Less 10% Wear/Tear £600

Less Insurance £150

Total: £750 taxable income

The real tax liability comes upon selling the property (assuming that there has been a capital gain!), and the government can track these thro the stamp duty forms which are now completed even if the property comes under the stamp duty threshhold.

The point I am making is that even if the rent is not declared, the likelyhood of there being an enormous tax bill at the end of the day is pretty low for the majority of landlords.

Btw - you are right about Scotland having mandatory registering for landlords, but it is pointless - all you have to do is tick a box to say that your propery meets legislation and then pay £11 per property which registers it for 3 years. The only thing they do check is whether you are a 'fit and proper' person to be a landlord. !?!

D

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We have had plenty of threads on here about whether or not BTL is a real business and the tax advantages it gets, so simple solution. Make all BTLs operate through a ltd. company. This serves the following:
  • it is clearly a business so there can be no confusion over it's tax status, e.g. whether or not it can offset income against borrowing costs

  • it will be properly accounted for - anual accounts would be prepared and visable to everyone, including the taxman

  • the correct amount of tax will be paid

  • the lenders will know it is a BTL

  • tenants rights can be applied correctly

This seems a pretty straight forward way of sorting all of it's ills or have I missed something?

Great idea. So operating as a Ltd company, you're presumably happy that the first £10k of profit from a BTL will be tax free then. Just checking.

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