Buy to let - family owned company?

[Slow road to freedom]

I have c £50k to invest outside of ISAs.

I’ve been reading about pros and cons of investing in buy to let property via a company, which has an attraction that it could be structured so the ownership can be largely with our kids. As well as diversifying our investments this kind of vehicle could be a long-term way of passing assets to our kids as well as allowing the company to employ one or ultimately two people as a way of ensuring NICs are paid (for state pension).

I’m concerned about a) the structure - the efficiency of it; and b) how much hassle being a landlord really is.

Does anybody have any direct experience , tips or tricks please?

Thanks in advance

[Father Dougal]

Will you be borrowing more through the company to buy a property or is the £50k the total investment?

[Slow road to freedom]

Will you be borrowing more through the company to buy a property or is the £50k the total investment?

Expecting to gear up with a BTL mortgage. Total investment likely c £200k.

[MarcherLady]

Hi Slow road, I try not to chime in on things I know little about, but since you aren't getting many takers yet:

My take on it is that the moment to make easy money from buy-to-let has passed. Taxes, legislation & lending are all getting more difficult. I know (from filling out the lengthy forms for my house purchase recently) that second homes attract higher rates of stamp duty now, including those held in trusts, would your company be caught in that?

[daverobev]

Hi Slow road, I try not to chime in on things I know little about, but since you aren't getting many takers yet:

My take on it is that the moment to make easy money from buy-to-let has passed. Taxes, legislation & lending are all getting more difficult. I know (from filling out the lengthy forms for my house purchase recently) that second homes attract higher rates of stamp duty now, including those held in trusts, would your company be caught in that?

Yup everything I have read as well means BTL is really not a good investment at the moment - people are getting out not in because they are not making much money. Mortgages are cheap so leverage is about the only reason.

OP have you considered Junior SIPPs and ISAs? That's a good way of passing ~£8k a year per child. If the JSIPP gets the full £3600 for a few years and then doubles every 10 years, it'll be a decent chunk by retirement time!

[Slow road to freedom]

I think BTL might be more hassle than it’s worth, especially given I’m not a property tycoon with a string of properties to pool. Not sure if there is anything else I could ‘invest’ in via a company for the future benefit of the kids.

OP have you considered Junior SIPPs and ISAs? That's a good way of passing ~£8k a year per child. If the JSIPP gets the full £3600 for a few years and then doubles every 10 years, it'll be a decent chunk by retirement time!

Does gifting cash in this way create a tax liability either for me or the kids? Is it one of those Potentially Exempt Transfer things that means I need to survive 7 years?

Of course, by diverting funds into JISAs, for example, means I have no control over the cash ... eek!

[Father Dougal]

Will you be borrowing more through the company to buy a property or is the £50k the total investment?

Expecting to gear up with a BTL mortgage. Total investment likely c £200k.

I sold up a couple of years ago after renting out a flat for many years. No regrets. Renting is a big hassle and the yield was poor. I recommend you make a budget. Depending on location you might struggle to make a profit and end up having to put money into the company to fund losses. Certainly the interest on a BTL mortgage to a company is going to eat up a lot of rental income. The government has brought in some tax laws to deter small landlords. You might escape some of these by having a company structure, but you will also have other overheads for maintaining the company and tax implications on selling the property in future. Depending on your total assets it might also be an over-concentration of risk in one asset.

On the other hand, gearing up can give better returns. You just have to judge if the risk and work are worth it.

[daverobev]

I think BTL might be more hassle than it’s worth, especially given I’m not a property tycoon with a string of properties to pool. Not sure if there is anything else I could ‘invest’ in via a company for the future benefit of the kids.

OP have you considered Junior SIPPs and ISAs? That's a good way of passing ~£8k a year per child. If the JSIPP gets the full £3600 for a few years and then doubles every 10 years, it'll be a decent chunk by retirement time!

Does gifting cash in this way create a tax liability either for me or the kids? Is it one of those Potentially Exempt Transfer things that means I need to survive 7 years?

Of course, by diverting funds into JISAs, for example, means I have no control over the cash ... eek!

Never for the children (edit - directly, the tax man will not be raiding their accounts); possibly for the estate (as in, amounts gifted as you say within the 7 years might be added back in to be paid by the estate if the estate is over £325k). Lots of good info here: https://www.hl.co.uk/investment-services/investing-for-children/minimising-tax

Inheritance tax and gifting

When money or assets are paid into an account (including Junior ISAs, Junior SIPPs and Junior Investment Accounts) for someone else's benefit, they are treated as a gift. Some gifts are free or exempt from tax, others may be subject to inheritance tax (IHT).

Gifts out of income

You can also make 'gifts out of income' free from inheritance tax. Regular payments made out of excess income (which don't affect your standard of living) are normally exempt from IHT. This can be a useful exemption for those wanting to contribute to a child’s investments through regular savings.

Gifts outside of exemptions

If you make gifts over and above exemptions, they may still be free from inheritance tax providing you survive seven years from the date of the gift. These are known as potentially exempt transfers.

[vand]

Agreed, house prices are too high relative to rents to make BTL an attractive proposition (at least in my neck of the woods).
The risk/reward profile imo is more skewed towards the risk, with possibility that interest rates will go up and/or house prices will suffer a downturn in a recession than warrants the reward you can expect to earn from your investment even in a rosy-case scenario.

From a UK perspective, property has handily beaten stocks market in the last 20-25 years as an investment vehicle, but I think that trend will reverse to some degree over the next 20-25 years, as the FTSE is now relatively cheap vs housing, and the punitive taxes imposed on property investment now will lead people to park their money elsewhere.

That said, my own situation is that we will probably be buying a bigger house in the next 2-3 years, and keep our current home to turn into a rental. The stamp duty on the new place is going to be horrific, but I really don't want to sell our current place and it will provide a 2nd income stream to offset the mortgage on the new home. I don't consider it a BTL because we never brought it with that in mind, but personal circumstances change, and we have already fully paid off the mortgage, so it is the path we think we would like to go down.