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Do You Need a Limited Company to Invest in Property? | Samuel Leeds


Hi, Samuel Leeds here, and I wanted to talk
to day a little bit about some of the tax changes coming in and should you be buying
your property, your next property through a limited company or should you just be buying
it as an individual. So that’s what we’re going to be talking about just in the next
couple of minutes. Firstly, let me just give you a quick introduction
to some of the potential new tax changes that they’re bringing in, and why I think that
they are bringing in. So, the government realised that, oh my gosh, property investors are making
an absolute killing. Hmm. We want to slice of the pie. So they’re changing some of the
rules slightly. And it’s basically going to eat out of investors’ profits. Now some of
the landlords that exist today are going to be financially crippled. Some are going to
be absolutely fine. As we are professional investors, we’re going to be absolutely fine.
So the first thing I’ll say is don’t worry about some of the hearsay around the changes
that they’re bringing in. One of the legal changes is the stamp duty
changes. You have to pay a lot more stamp duty now on properties, which is annoying.
They always round it if you’re buying like six properties at a time through a limited
company and things like that, but I think the best thing to do on stamp duty changes
to just accept, you know what? You’ve got to pay stamp duty. And because you’re hopefully
buying a property that’s going to be giving you a high, nice income each month, you’ll
have paid off that stamp duty in a couple of months anyway with the profit that you’re
making through your property. So don’t worry about it. Again, as I always say, when everyone
else is scared and hesitant, that’s the time to be greedy. When everyone’s greedy, that’s
the time to be scared. For stamp duty changes, the tax changes, everyone’s like, “Oh, my
goodness, oh my goodness.” Get in there now. It’s the time. So, stamp duty, yeah. It’s
a pain. Get over it. Tax changes, let me just give you a little
introduction to what the changes are. What they’re saying is, that at the moment, if
you rent out a property and say the rent is £600, and your mortgage payment is £400,
you’re left with a profit of £200 each month. And that £200 is what you would pay tax,
okay. Now of course you don’t pay tax on the first £11,000 that you earn or whatever it
is, but if you … that’s effectively how it works. You pay tax on the profit. What they’re potentially bringing in, and
then saying that their plan is to phase it in, and so it comes in properly in 2020, but
what they’re saying is, that you no longer can claim your mortgage expense as a tax deductible
expense. Hmm. Which means, that if you’re renting a property out for £600, and your
mortgage is £400, you’re still going to have to pay tax on the whole £600. Now, firstly
I’ll say, I think that is a ridiculous law. It’s the only time in the economics of history,
in England certainly, whereby you could potentially pay more tax than you earn. Because if your
mortgage is £600 a month and your rent is 600, you’re making nothing. But you’re still
paying tax. So, it’s a ridiculous law. I don’t even know if it’s going to come in or not.
Because I’m kind of thinking it’s so stupid the guy that brought the law in is now no
longer in his position anymore. There’s uproar amongst hundreds and hundreds and thousands
of investors and landlords, and it’s going to ultimately affect the tenant more so than
the landlord. So I don’t know if it’s going to come in or not. But if it does come in,
what’s going to happen? Well the first thing that’s going to happen
is rents will go up. Because there’s going to be so many landlords that are like, “Oh,
I can’t afford to … I was relying on the income and now I have to pay tax, more tax.”
So they’re going to push rents up. Now rents haven’t gone up, really, from the year of
like 2006 to 2013. Rents did not move. Over the last couple of years they’ve gone up a
bit, certainly on some of the big properties. You could rent a mansion before in the Midlands
for about £1500. Today you’re talking at least 2,200. The rents have gone up, but not
so much amongst the smaller properties or the rooms. So my prediction is, I think that
whether the tax changes come in or not, the tax changes will help it. I think it’s going
to push rents up. So I’m quite excited about that. So that’s one thing I’ll say. Also, it might not come in, but if it does
come in, it’s not going to affect people like me and you that much. Why not? Well, because
if our mortgage is £500, and our rent is £600, we’re going to be really affected,
because we’re going to have to suddenly pay tax on the whole lot and the big, fat mortgage
expense that we’ve been claiming we can no longer claim as tax deductible, an expense.
However, if you’re buying a property that’s cheap for like 100 grand or 120 grand, and
your mortgage is just a couple of hundred pounds, and your rent is like £1500, if you
can’t claim that little £200 as an expense, how much is it going to affect you? £30 a
month? So the new tax change are probably really only going to affect you by about £30
per month per property. And they’ve scared everybody else off, and they’ve pushed rents
up, so really, is it all that bad? I am not sure that it is. If it comes in,
even. So, I don’t think it’s really anything to worry about. Now, there is a way around
it, like there always is, because you know what? The people that make the rules make
money in property. So, there’s always ways round the thing like this. So I think that
one of the ways around this is to buy properties through a limited company. If you buy a property
through a limited company, the rules don’t apply to you. You can still always claim the
mortgage payments as a tax deductible expense. So, a lot of people are not setting up companies
but buying through their company. Now, question. Is it a bit of a nightmare
to do that? It used to be. But now, today, because as one rule changes and becomes more
difficult, another opens over here. There’s an old saying that says as door closes another
opens. So, they’re making this potential change for tax changes, they’ve suddenly made it
a [inaudible 00:06:16] to buy properties through a limited company. You can set up a limited
company tonight for about £12 and it might make you 15, 20 minutes to do it. And then
you can buy a property tomorrow through that company. How? Well, because what they do is they used
to look at the limited company, and they used to say, “Well, let’s do checks on the company
and how much does the company make?” And it was all about the company. Today, it’s not.
The company can be a virgin company, brand new set up. What they do is they look at the
end deed of the company. So as long as you can get a mortgage, you will act as a guarantor
for the company. Makes sense. So what you want to do is you want to make sure that the
company, in fact if the company is an old company that’s been trading, it’s actually
more difficult. If you’re planning on buying a property through a company, you want to
just set up a brand new company with the sole purpose of that company to buy houses. It’s
really easy to do. It costs about £12 to actually do it. You might want to pay an accountant
a little bit extra to directly do it for you. So should you be buying properties through
a limited company? I would say probably yes if you’re planning on building a big portfolio
it would make sense. If you’re just starting out and it’s your first property and you just,
you know, you just want to sort of try it and see how it goes, it might be better to
just buy it as an individual. Reason being is, if you’re setting up a company, you’re
going to have to set it up, you might have to pay someone to do it or do it yourself.
You’re then going to have to do, pay an accountant or do it yourself, but you’re going to have
to treat it as a business and you’re going to have to pay someone to do your accounts
and things like that, so it’s going to be expensive, but for the sake of losing a few
pounds a month potentially from doing it as an individual, I think if you’re just starting
out, I’d probably say, you know what, just buy it as an individual. If you really want to be growing this, you
want to be buying lots of properties, then yeah. Set up a limited company. If you want
help doing that, speak to an accountant. If you email me and you’re interested, I can
give you the details of my accountant. But if you’re just starting out, I’d probably
say do it as an individual. It’s your call. Hope that’s been helpful. And look forward
to speaking to you real soon. Thanks.

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