The UK housing market has defied expectations throughout the pandemic, as both demand and prices have rocketed in a period where the UK is meant to be suffering from an economic shock caused by covid-19.

UK house price growth reached 10.2% as of March 2020, the government’s Office for National Statistics data shows, which is the highest rate seen since 2007.

There were 190,980 transactions in March 2021, double (102.3%) the amount in March 2020 and 32.2% higher than February 2021, before covid-19 took hold in the UK.

Stamp duty holiday

When the stamp duty holiday was introduced in July 2020 it was designed to keep house prices and activity afloat during these difficult times, but it’s arguably had too much of an impact.

The tax relief has seen buyers pay no stamp duty on purchases up to £500,000 compared to the usual level of £125,000 – saving owner occupiers and investors as much as £15,000 on tax.

Originally the stamp duty holiday was scheduled to expire at the end of March, which saw buyers clamour to complete purchases before that deadline.

However that date was pushed back to June 30th, attracting a fresh scramble of buyers looking to take advantage of the tax cut.

The stamp duty holiday has clearly stoked demand, as price rises since the tax cut was introduced have generally wiped out the value of tax savings people have been able to make.

Demand doesn’t seem to be letting up.

Research from The Deposit Protection Service revealed that a third (34%) of landlords purchased another buy-to-let property or intend to buy one within the next nine months – with a third (34%) citing stamp duty savings as a significant factor.

Lack of supply

Rising demand wouldn’t be pushing up prices like this if it wasn’t for the lack of new supply entering the market.

In the year to December 2020 housing starts dropped by 17% according to provisional government figures, while RICS reported that there was a lack of new property coming to the market in April.

Firstly it’s been a difficult time for builders, who were forced to pause work as the UK grappled with the unknown quantity of the covid-19 pandemic.

Developers are now back to work, but are likely slowed down by having to comply with safety measures designed to hinder the spread of the virus, which could limit the release of new stock.

Secondly some sellers are reluctant to sell their properties in the current climate, especially those more at risk from the virus.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, at least predicts this issue to improve in the coming months.

He said: “We are finding that acceleration of the rollout of the second jab in particular is encouraging many older owners to put properties on the market but not fast enough to restrain prices.”

Regional growth

When we talk about the market seeing very strong growth, we’re generally excluding London.

Prices have risen considerably in the North of England in particular, with Yorkshire and the Humber (14%), the North East (13.7%) and the North West (12.8%) leading the way.

Places like London however have been hit by people leaving the big cities – with people working remotely and others losing their jobs there’s less of a need to live there.

As a result house price growth in London is at a more sensible 3.7%.

Secondly having to self-isolate has resulted in homeowners changing their priorities, resulting in more demand for green space and larger homes.

Given how expensive finding either in the likes of London is, it makes sense for people to upsize in less populated and more affordable regions of the UK, as second and third-steppers in particular have taken advantage of the stamp duty relief – many of them moving locally.

Pent up demand

During the pandemic people have been placed in limbo, not feeling like they can move and get on with their lives.

With this in mind, there may have been a surge in demand, prices and transactions even without the impact of the stamp duty holiday.

At the same time, those people that were lucky enough to keep their jobs during the pandemic are more likely to have saved cash during the period, because they were unable to spend money on the likes of overseas holidays owing to the travel restrictions in place.

Conclusion

A tax cut, a lack of new homes hitting the market and pent-up demand has seen house price growth hit levels not seen since 2007.

The current situation calls for caution from buyers, who need to make sure they’re not overpaying for properties in the current climate just because they’re competing with other aspiring owners.

In July the expiring stamp duty holiday will mean no tax is paid on the first £250,000 of property prices, down from £500,000, while that amount will be reduced again to £125,000 by the start of October.

Once these deadlines pass it seems likely demand will dampen, which could have a softening impact on prices.

After that time buyers may be able to drive a harder bargain, especially if more people feel safe enough to put their properties on the market.

So even if you can’t make a tax saving from the stamp duty relief, there’s not necessarily a huge rush to buy immediately.

The post UK Gap Between Supply & Demand appeared first on Buy To Let Tax Accountants.

The government has extended the stamp duty holiday by three months until June 30th, while there will be a smaller amount of tax relief after that.

As announced in Chancellor Rishi Sunak’s Budget, stamp duty will continue to be suspended on the first £500,000 of all purchases in England and Northern Ireland until June.

Meanwhile people won’t pay stamp duty up to £250,000 from June to September 30th, double the standard level of £125,000.

Housing market reinvigorated

Since the holiday was introduced demand has been stoked by the tax cut.

However, due to a combination of this demand and the impact of the pandemic, the speed of the housebuying journey has slowed considerably, with transactions taking as long as six months to complete.

It’s become to get a survey completed in the current climate, while the process of getting a mortgage is taking longer than usual.

Due to these delays, there were to fears that transactions would fall through by failing to meet the original March 31st deadline – as buyers could pull out if they were expected to pay far more in tax than they budgeted for.

Positive reaction

Much of the house buying industry has responded positively to the announcement.

John Goodall, chief executive at mortgage lender Landbay: “The extension of the stamp duty scheme is good news for landlords and anyone wanting to purchase a property. It will certainly enable all of the purchases currently in the pipeline to get over the line.”

And Brian Murphy, head of lending at broker Mortgage Advice Bureau, said: “It offers some much-needed latitude to the industry as conveyancers have been overwhelmed by the sheer volume of transactions, and so the extension should help ease the current bottleneck the market is experiencing.”

Cliff-edge

However, the announcement has also attracted some controversy.

When a stamp duty holiday extension was discussed many though it would only apply to those already in the process of buying a house.

But the Chancellor’s announcement effectively means that the cliff-edge – where buyers could potentially miss the deadline and end up paying more than they expect – has just been delayed by three months. There will also be a second smaller cliff edge, running until September 31st.

Andy Sommerville, director of Search Acumen, said: “The Chancellor’s much-anticipated move simply defers rather than dodges the cliff-edge by putting it off until June.”

Conclusion

The deadline has given buyers a second chance to take advantage of the stamp duty holiday – which could provide a boost to investors and homemovers in particular.

However, with transactions taking months to complete, people shouldn’t bank on being able to take advantage of the tax change.

For those that are able to get transactions over the line however, Rishi Sunak’s announcement is very welcome news – and should give the housing market some new life as we head into the summer.

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What is a trust?

A trust is a way of managing your assets, in this case property, by transferring them to another person, either a child or family member. Although technically the property will no longer be in your name, you will still have some control over how the property is used. Trusts are set up for a number of reasons. These can include preparing for inheritance tax, controlling or protecting family property, or in the case that the trustee is too young or incapacitated to manage their own affairs.

There are three main parties involved in the process of transferring property into a trust. The settlor establishes the trust by transferring the property. The trustee is the person in charge of managing the trust. The beneficiary is the one who will benefit from the trust. As the new legal owner of the property, the trustee manages it according to the settlor’s wishes outlined in the deed. An example of a beneficiary could be a child, who will gain control of the trust when they reach a certain age or in some cases, upon the death of the settlor.

What are the two main types of trust?

There are two main types of trust:

• Interest in possession trust

In this case, the entitlement is fixed and the beneficiary must receive the income or entitlement of the trust.

• Discretionary trust

This type of trust depends on the discretion of the trustee. They have control as to when or whether any income or capital of the trust is granted to the beneficiary.

Particularly in the second case, it’s advisable to have a minimum of one independent trustee who is not a beneficiary.

What are the taxation implications of a trust?

Transferring property into a trust is not without tax implications, however. Each type of trust is taxed differently, and for each party involved. In the case of a discretionary trust, for example, trustees are required to pay tax on any income accumulated by the trust. The amount changes depending on the number of trusts the settlor has. Trustees don’t qualify for dividend allowances either for a discretionary trust.

Trustees pay tax on interest in possession trusts, but it’s paid at different rates. Dividend-type income tax is paid at 7.5% and other income is paid at 20%. The trustee can also pass these responsibilities to the beneficiary who will then need to manage their own self-assessment.

Advantages and disadvantages of a trust

One of the main advantages of a trust is to ensure the control and protection of your assets. As a settlor, you decide on how you want them to be dealt with and how your loved ones benefit. It’s also a way to set up certain conditions, for example, if you would like to give your property to your child but only when they reach a certain age. A trust is also a way to minimise inheritance liability, protecting the future finances of your family.

The drawback is mainly that the settlor must relinquish legal title to the trust property, and this is irreversible. For this reason, it’s not a decision to be taken lightly. Although, by setting up a trust you will also be able to control the terms in the deed, which will give you peace of mind, even though the asset is no longer in your name. A financial advisor will be able to help you with the details setting up your trust, so you will have a certain level of control over what happens to your property.

Another disadvantage of transferring property into a trust as a gift or to children is that all settlors, trustees and beneficiaries are likely to incur related taxes and other charges. These include:

• Capital gains tax

If the property that’s put in a trust increases in value then capital gains tax will be charged against this gain. The person who’s responsible for paying capital gains tax depends on the situation. Upon putting the property into a trust, capital gains tax is paid by the person selling the property or the settlor. If the trustee then transfers or sells the property on behalf of the beneficiaries, they need to pay capital gains tax. Once the beneficiary becomes completely entitled to the property, they are then responsible for capital gains tax based on the current market value

• Inheritance tax

Inheritance tax is due at the time of transferring property into a trust. When the trust ends inheritance needs to be paid again in the form of exit charges. Trusts also occur 10-yearly inheritance tax charges.

Potentially Exempt Transfer (PET)

Transferring a property into a trust as a gift or to children is a means to securing your assets, but it’s important to account for these additional costs. There is a way to avoid inheritance tax in particular, however. If the settlor survives the gift for seven years after they will be entitled to transfer assets free of inheritance tax.

Seek financial advice

If you’re considering transferring property into a trust, then it’s recommended to seek financial advice to ensure that you and your family benefit as much as possible. There are many advantages to setting up a trust. It gives you peace of mind knowing that your assets are protected. You can plan ahead for the future, securing your family’s finances.

A financial advisor will be able to outline all the tax implications related to transferring property into a trust and explain any necessary costs. There are several types of trust and the conditions depend on a variety of factors. There are also possible exemptions from certain taxes, and a financial advisor will be able to let you know if you’re eligible. If you would like to discuss the tax implications of setting up a trust, get in touch today

The post Transferring property into a trust as a gift or to children. Tax Implications appeared first on Buy To Let Tax Accountants.

My mortgage broker wants me to put buy-to-let properties into a limited company to save on tax, should I do it?

If your mortgage broker is proposing that you put buy-to-let properties into a limited company, this is good advice if you own several properties. If you only rent out one or two properties the money you’ll receive on tax relief probably won’t balance out other taxes and fees involved including, stamp duty, capital gains tax, and corporation tax.

What are the drawbacks of Limited Company Property Investment?

There are a few drawbacks of limited company property investment that you’ll need to consider for making a decision. Commercial mortgages typically have higher rates, so although you’ll be entitled to claim tax relief on rental income, your mortgage payments could increase. Also, if you happen to sell the property in the future, you’ll be required to pay corporation tax on any income, as well as additional taxes.

What are the benefits of Limited Company Property Investment?

Limited company property investment can have benefits in certain situations. You’ll have more options such as using a family investment company instead of a trust if you plan to leave your property to your family. In general, transferring property to a limited company will reduce your tax burden, and you’ll be able to claim tax relief.

How much does it cost to incorporate your buy to let properties into a limited company

In order to incorporate your buy to let properties into a limited company, you’ll need to pay legal and financial fees. These could range from anywhere between £8,000-£25,000, but it completely depends on the services you use. Unfortunately, you won’t be able to avoid paying mortgage arrangement fees, solicitor fees, and taxes.

What are the tax considerations when selling residential property to a limited company?

The main differences between being an individual buy-to-let landlord or trading as a company are related to taxes. There are both advantages and disadvantages of transferring property to a limited company. As a limited company, you pay taxes on a fixed percentage of your earnings whereas for individuals you can enter higher tax brackets according to your income. Although limited companies don’t pay capital gains tax, you’ll instead have to pay corporation tax on any profits made from selling the property and stamp duty.

What are the stamp duty costs when transferring a property to a company?

Stamp duty is now exempt for individuals buying a property up to £500,000, and after that, a percentage is charged, starting at 3%. Stamp duty is charged at 15% on any residential property bought by a company of a higher value than £500,000. There is also a 3% surcharge for companies buying residential properties. There are certain exceptions to these rules, and it depends on the purpose you’re using the property for.

Is it really worth incorporating your buy to let portfolio into a limited company?

If you’re serious about setting a limited company as a property rental business and have at least six properties, it could be worth it financially. It depends on each individual case. It’s recommended to discuss your options with a financial advisor, and they will be able to go through all the details of the transaction and provide you with the best solution.

What are the possible Capital Gains Tax changes in 2021

The capital gains tax on any UK property sold after April 6th, 2020 must be reported and paid within 30 days of selling. Failure to do so could result in a penalty or paying higher interest. This only applies to individual landlords who will need to pay a fixed capital gains tax of 28% of the property itself and 20% on other chargeable assets. This is the same as a higher-rate income taxpayer. For basic rate tax-paying individuals, the amount depends on the size of the income gained by selling the property. Limited companies, on the other hand, don’t pay capital gains tax, only corporation tax on any profits made from selling their assets.

How will Section 24 mortgage interest relief affect me?

The section 24 mortgage interest relief changes affect individual landlords in that there is now a fixed rate you can claim. For higher taxpayers, this not only results in an increase in your tax bill but also the risk of entering higher tax brackets. The rules are different for limited companies, however. Limited companies are still entitled to claim financial costs as a taxable expense. Landlords can, therefore, optimize the commercial benefits of running a property by transferring it to a limited company. This scheme is in place to benefit professional rental property companies. If you’re a landlord looking to incorporate a residential property into a limited company, section 24 mortgage interest relief will affect you differently as a result.

In order to make the decision to incorporate your property into a limited company, you should seek professional advice. Transferring property to a limited company is a complex procedure and there are pros and cons on both sides. If you’re a buy-to-let landlord considering this option, speak to a financial advisor or professional mortgage advisor. They will be about to outline the benefits, along with all tax implications, and find the best solution for your unique requirements.

We can help you incorporate residential properties into a limited company. For more information on how transferring your property to a limited company could benefit you, talk to one of our experts today. You can get in touch via our website to arrange a callback.

The post The tax pros and cons for transferring property into a limited company appeared first on Buy To Let Tax Accountants.

We prepare company accounts for small, private limited companies.

What are company size thresholds, and why do they matter?

It’s important to be aware of the size and stature of your business, because this provides the means by which you are registered in commercial law. This is laid out in large part by the Companies Act 2006, which designates a series of thresholds and definitions to define company size.

A company that falls under the designation of ‘large’ can be classified as:

• A micro-entity (these are companies defined by having a turnover of less than £632,000 with total sheet balances less than £316,000. They must have no more than 10 employees) – this often includes sole traders.
• Small (these are companies defined by having a turnover of less than £10.2m, with total balance sheet assets of less than £5.1m. They must have no more than 50 employees.)
• Medium (these include companies defined by having a turnover of less than £36m, with total balance sheet assets less than £18m. They must have no more than 250 employees).

These designations are essential because they will define just how comprehensive the statutory accounts will be. Small business entities are granted the chance to offer a small and simpler statutory report at the end of the year, eschewing the usual breadth and depth of its reporting to only the most salient and important statistics and figures.

The Two-Year Rule

It’s not uncommon to hear the ‘two-year rule’ mentioned in business parlance, but what does it mean? Put simply, the first year of a business’s operation is often defined by the figure that have been calculated in that breadth of time, often easy to find, to source, to compare and to calculate. However, when the second-year ends, it’s clear to see that there are many more comparative metrics worth considering, and of course reporting in your accounts.

This involves:

Full Accounts

What classification denotes what reports you need to create, and what compliance measures you are expected to follow? Let’s showcase some of the following advice to help you in that direction:

Micro-Entity Companies –

Micro entities are expected to give a simple balance sheet, including the signature of the director stamped at the bottom, as well as a declaration of accounts prepared in line with the correct guidelines. In some cases where an audit is required, an auditor’s report will also be present, although you can apply for exemption from this.

Small-Sized Companies –

Small companies must provide a balance sheet with the director’s signature and declaration, a profit and loss account, a director’s report which includes notes to the accounts, and an auditor’s report if an exemption is not granted.

Medium-Sized Companies –

Medium-sized companies must provide a balance sheet, a profit and loss account, a director’s report and signature, notes to the accounts, auditors reports, and must also provide all of this to the companies house, so that they can track and thoroughly ensure all is verified. You can also apply for an auditor’s exemption in certain circumstances.

Abridged Accounts for Small Companies

Under section 381 of the Companies Act 2006, certain small companies are afforded the chance to provide abridged accounts. This allows for a small and simpler list of details, making it easier to keep up with paperwork and to gain verification in your reporting habits each year. This is not afforded to medium, large or micro-entity businesses.

Abridged accounts include an abridged profit and loss account, an auditor’s report (unless exemption is claimed) a director’s signature placed on the balance sheet, a notes to the account, and statement on the balance sheet, and a statement that all parties consent to the abridged forms.

Filing End-Of-Year Accounts

Filing your end of year accounts is still a difficult and complex logistical task, but modern software solutions have made this effort much easier for businesses to tackle and index. You may find that preparing your annual account is aided by the CATO service, known as the Company Accounts and Tax Online service, which enables you to provide your paperwork to both Companies House AND HRMC at the same time – hitting two birds with one stone, as it were. Note – this is usually only available for micro-entity firms or small accounting fir

Can I Prepare My Own Limited Company Accounts?

Yes, but this often takes time, can be an arduous process, and may even leave you incurring penalties if mistakes are made. You don’t have to be incompetent to make mistakes either, there are many financial figures at play in end-of-year account reporting, but even honest mistakes can lead to fines.

For this reason, it’s much better to use financial advisors and accountants to help you prepare this end-of-year summary. They will understand the compliance necessary, will walk you through your books, and will also ensure all materials are delivered on time.

Contact Us Now!

So, what are you waiting for? It could be that contacting us now provides you with the required assistance you need. You can contact us at 020 3903 4292 or use our contact form.

The post Small Company Accounts appeared first on Buy To Let Tax Accountants.

What is a semi-commercial mortgage?

Quite simply, they are mortgages that are designed for properties that have a merge of residential and commercial elements. As you can imagine, the list of properties that this applies to is very diverse. There can be any number of mixtures of business, leisure, living spaces and commercial usage in one property. A semi commercial mortgage is uniquely designed for this

What are Semi-commercial property types?

These types of property that qualify for this type of mortgage are very varied.

• Offices
• Gyms
• Hotels
• Retail Stores
• Condos
• Apartments
• Bars
• Kennels

The list could go on and on. Anything that is a residential property and a commercial property, it will fall under this type of loan category. As long as there are tenants, homeowners, and business owners and companies operating inside one property, and plan on investing in such a property, this is a great option for funding your plans.

How can I obtain a mortgage for a mixed-use / semi-commercial property investment?

These types of loans can only be given by a commercial lender. So don’t bother going to a residential property lender as they will direct you to the former. They will begin by calculating the potential income of the collective rent of all the residential properties first. As businesses can come and go in a matter of months, they would want to know the long-term wealth prospects of the property by doing this.

They will then set about, doing the same for the commercial portion. They will include the buy-to-let potential profits which could be largely different from the solely tenant opportunitie

What is the eligibility criteria for a semi-commercial mortgage?

As you can imagine this type of property is very complex. There are a lot of things to consider. A mixture of property owners, renters and business owners is a substantial challenge. This is why lenders will usually require you to have some experience. They mainly wish for you to know your way around the buy-to-let portion of the property, as the changing of hands with regard to property inside a larger property, is mired with dangers.

However, the length of experience differs from lender to lender. Some might only want you to have at least 6 months, while others may require a longer stint of property ownership, management and planning. They could ask for as much as 3 years or 5 years in this regard. On the other hand, some lenders will want to assess your personal experience, i.e. hands-on approach to problem-solving, conflict resolution and development for maximum growth potential

What deposit is required?

Usually a 20-30% despot will be fine for this type of property. However, again it’s subject to the lender and also the kind of property. It might be a high-street retail store with just 2 studio apartments above. It might be a shopping mall with many condos and retail stores available. The growth potential will be calculated as well as the overall cost of the property. It might be higher than 30% or it might be lower. The benchmark to aim for is 20%.

Mortgage rates and terms for semi-commercial property

Usually, the loan-to-value will be 70-75%, so there is quite a lot of leeway and availability for funding of your property. The fees for the loan can be 0.75-2% for any amount that is over £1 million. As the larger the loan is the more complex it becomes, lenders will want to cover their end of the work by asking for this percentage in fees. VAT loans are also available and can be 100% of the VAT that is due on the loan.

The terms will be from 5 years to up to 25 years. The merits of the property will always be considered to the individual case. It’s up to you to create a report that is worthy of a great loan. So it’s advisable that you commission a property risk analyst to write a report covering, growth potential, international appeal, upgradability in future, the type of tenant and business owner that would be attracted to the semi-commercial property and what support the property would get from the government if it could show it’s national or regional economic value, etc.

Semi-Commercial Lenders and Mortgage Rates

The interest rate for the loans can be from 2.75% to 3%. The market averages out to offering 2.75% rates for most of the loans offered. Once again, the merit of the property will be considered and it will affect the rates you are offered.

The advantages of using an experienced commercial mortgage broker

It goes without saying that hiring someone who actually knows their way around this kind of property, would bear ripe fruits. You are dealing with a merger of people’s living spaces with busy, loud and exciting retail businesses. It’s a good idea to involve a commercial mortgage broker that has a lot of experience under their belt. You need them to look for the best rate on the market, using their contact and industry knowledge. You are effectively hiring a specialist and they will possess skills that other lending institutions will not.

The LTV rate could be 70% or it could be as high as 85%. If you have someone negotiating with prowess and skill, they can get you the maximum. In some cases, you could be given a special one-off rate.

Mixed-use semi-commercial properties are complex and the potential for stepping into a hazard is always there. Contact us today if you’d like to know more about what we do and how we can help you

The post Our Guide to Semi Commercial Mortgages for property with mixed use appeared first on Buy To Let Tax Accountants.

What is a joint borrower, sole proprietor mortgage?

A JMSP mortgage is quite simple. If you are an affluent parent and your child is seeking to get on the property ladder, you can use your income and combine it with their own, to be able to qualify for this kind of borrowing plan. The key is that you don’t take ownership of the property, so you don’t pay a hefty surcharge from the stamp duty. The benefit of this is, the parent pays a large portion of the mortgage, but as the child steps up in their career and begins to earn more, the parent slowly stops making the lion’s share of payments. This allows for parents to smoothly exit from a JMSP mortgage and also, give their child a greater sense of independence and ownership of their home.

How do Joint Borrower Sole Proprietor mortgage applications work?

It’s highly likely that a young person who is starting off on a base salary won’t be able to earn as much as their parents, and thus, not be able to afford a decent property. However, combining your parent’s salary with your own can lead to being given the green light for a JMSP plan. Let’s say the property you want to buy is £300,000 but your salary is £25,000. A mortgage that is over 10 times the level of earnings would be immediately rejected. However, combining the parent’s £90,000 salary, it equals £115,000 and thus, about 3 times the mortgage intended. As long as the total is between 5-3 times the mortgage, you will be fine. The parent doesn’t take ownership but makes the majority of payments for the time being and then gradually phases out as the child begins to pay more.

How many applicants will joint borrowers, sole proprietor mortgage lenders consider?

The maximum that will be allowed, is four. This is great for parents who have two children or perhaps would like to help at least two and get them onto the property ladder. The major concern for you is, what if the two children who now jointly own a property, which you are making the majority of payments for, don’t live up to their end of the deal? What happens if one leaves the country for their career? What if one of them loses their job? All four of you need to know what you want to do and what obligations you’re okay with before agreeing.

How many applicants will joint borrowers, sole proprietor mortgage lenders consider?

We are seeing more and more customers who want this kind of mortgage. It’s great because children get to own their first home. A joint mortgage is where the parent takes joint ownership of a property and thus, the child doesn’t feel as if it is their home. It’s also a legal untangling mission for when you wish to fully transfer ownership of a joint mortgage property, to your child.

A JMSP is great for an affluent family, with children who have great career prospects and are earning a decent or above-average salary.

Which lenders offer JBSP mortgages?

It’s a good idea to ask around, but some of the well-known names are Barclays, Metro Bank, Clydesdale, Natwest, and Halifax to name a few. You should ask any lender you feel can live up to the challenge as they are also taking risks.

Best JBSP rates

Lenders are willing to take up to 20% exposure risk for a JBSP plan. It all depends on the situation, earning potential of the children, and the wealth of the parents. Different banks and lenders will all have their own exposure rates and different interest rates on the mortgage.

Pros and cons of Joint Borrower Sole Proprietor mortgages

Pros

• Obviously, being able to actually own the property outright for the first time, is a major source of pride for the children.
• The parent can smoothly transition out of the plan as the earnings of the children grow.
• There is no stamp duty to pay, which normally amounts to 3% of the property. On a property worth £300,000 this would be £9,000. So it’s a great money-saving opportunity.
• The children will be given a home from which they can make a start in life. This helps them to chase their career and not worry about getting on the property ladder before it gets more expensive.

Cons

• Clearly, the parent is taking the majority of the risk. Not only are you paying the most for the first few years, but you have no ownership of the property
• If you were to fall out with your children, you could be left with a huge risk. You are liable to make payments on the property but have no control over it.
• If a child stops making payments or earning a salary, the parent still has to pay their share of the mortgage and is effectively locked in.

Using a joint borrower, sole proprietor mortgage for protecting assets

If you own a business but it fails, you still have a ‘family’ property that is not actually owned by you. Thus, you can use your children to buy a property but not legally own it. You can also use the ‘second’ home to let but not pay any tax on the income that is brought in.

Speak to a joint borrower, sole proprietor mortgage expert before you apply

Always speak to a professional before committing. We can provide you with all the information you need. We’ll run you through the process, guide you through any dark alleys that might be lurking in any JBSP mortgage plan and also, give you a rounded education on the benefits and pitfalls.

We think that JBSP is the right product for this era as property prices are soaring and young people struggle to get onto the property ladder. Don’t hesitate to contact us when you’re ready to know more.

The post Joint Mortgage Sole Proprietor Mortgages – 1st step onto the property ladder appeared first on Buy To Let Tax Accountants.

Why set up a limited company?

As of April 2020, many landlords are losing valuable tax relief due to the fact that mortgage expenses from rental income can no longer be deducted from your taxes. All landlords now receive a tax credit of a fixed rate of 20% of their mortgage interest payments. Previously, landlords in higher tax brackets were able to claim a higher tax relief. Limited companies, on the other hand, are exempt from this new rule.

Choose between a private and public limited company

If you’re interested in setting up a limited company for property rental, you can choose between a private or public limited company. Public companies are different in that you have the option to sell shares to the public. There is more red tape involved in setting up a public limited company, but you will have more opportunity to raise capital and an exit strategy in place if necessary

Your limited company name

You’re required to choose a name for your business if you set up a limited company. This cannot be the same as or too similar to that of another registered business. Your company name must end in Ltd

Forming the limited company

There are several steps you need to take when forming your limited company. This is to ensure you meet all the legal requirements. Here is how to set up a limited compa

Company shares and shareholders and director

You need to appoint a company director, whether this is yourself or somebody else. You also need at least one shareholder. Limited companies are technically owned by

shareholders. It is possible, however, to be the sole shareholder and director yourself and own 100% of the company.

Your duties and responsibilities as a limited company director

If you choose to take on the role of limited company director, your duties and responsibilities will include keeping and updating company records, accounts and taxes, corporation tax, and following all rules laid out by the company’s articles of association.

Registering a new limited company – the company formation process

In order to start a new limited company, you need to officially register your address and a SIC code. A standard industrial classification of economic activities (SIC) code is a way to categorise your company by sector and the nature of your business. You will need to register for corporation tax as well, and you can take care of all these steps with Companies House.

Documents you will need to complete to register a limited company

Companies House has a straightforward online platform allowing companies in most cases to register and start trading immediately. You will need to complete a few documents first. The first is the Memorandum of Association. This details each shareholder and their intentions with your company’s shares. This document can just include yourself if you’re the sole shareholder. The Articles of Association are also legally required. These outline the rules of your business and certain clauses of the Companies Act. Companies House can provide a standard template for this. Finally, you need to complete the Form IN01 which allows you to make various amendments.

Claiming back pre-trading expenses from your limited company

If you’re setting up a new business, you can claim back pre-trading expenses from your previous costs. For example, if you’ve invested a lot of personal funds into setting up your business, you can offset these expenses against your turnover for corporation tax, as long as you’ve begun trading.

Do I need an accountant to set up a limited company?

There is no actual legal requirement to have an accountant to set up a limited company. It is recommended, however, in order to better manage your finances. If your business becomes large enough, it will also be legally required to undergo an audit.

How much does it cost to set up a limited company?

It only costs £12 to register as a limited company. It’s important to take into account other expenses, however, such as legal or administration fees. You can pay to register online with a credit or debit card once you’ve completed all the necessary documents.

How much tax do you pay if you have a limited company

Corporation tax is charged at 19% of your total profits, but you won’t have to pay income tax or national insurance. You will also be entitled to tax reductions based on taxable business expenses. The amount of tax you pay is therefore directly dependent on your profits.

How do I pay myself?

In order to pay yourself after setting up a limited company you have two options. If you are the director of your own limited company, you can pay yourself with a dividend. For maximum tax efficiency you could also take a salary. Your salary will count as a business expense and could help to reduce your corporation tax. You could even pay yourself with a combination of dividends and salary. Speak to a financial advisor and find out which solution works best for you.

If you’re wondering how to set up a limited company, it’s actually easier than it sounds. You can take care of everything using the Companies House online government portal. It doesn’t cost much to register, and the profits only depend on the productivity of your business. Your company could be trading within the next day.

In order to set up a limited company to rent property, speak to a financial advisor to find out if it’s worth your while taking into account the tax implications. We help buy-to-let landlords incorporate their property rental businesses. If you would like further information on how to set up a limited company, get in touch today.

The post How to set up a ltd company, Guide for Landords appeared first on Buy To Let Tax Accountants.

Why become a landlord?

There are so many benefits to becoming a landlord, including:

• Income: Everyone wants a steady income, and this is undeniably the primary benefit of becoming a landlord. Particularly if you have another job on the side, renting out a property to tenants can be extremely lucrative if done right. And if you charge the right amount, the rental income should more than cover the monthly payments on your buy-to-let mortgage and other maintenance costs. This income does of course rely on your tenants, so you’ll need to ensure you have picked trustworthy tenants who pay their rent on time and don’t cause you any financial setbacks.
• Independence When you work as a landlord, you are effectively your own boss and in total control of your career. Yes, you have various legal and tenant responsibilities, but the freedom of working for yourself far outweighs these. And if you outsource the day-to-day administration to a property management company, you will enjoy all the financial reward with none of the hard work.
• Security People will always need somewhere to live, and real estate is one of the safest financial investments there is. Although the market is fluid and fluctuates all the time, as long as you own a quality property in a good area, you are guaranteed always to have tenants.

Rental costs vs returns and rental income

Buying a property to let can provide a landlord with two income streams. Firstly, you have the rental income from your tenants, and secondly, the capital appreciation as the value of your investment property increases. Of course, neither income stream is guaranteed. You may struggle to find tenants to fill your property, and as a result, you’ll lose money while your property lies vacant. Nor is your property guaranteed to increase in value. The property market can fluctuate, and depending on the property and its location, it could lose value over time.

The financial rewards of being a landlord are accompanied by numerous costs, and you can only be successful if your income exceeds your outgoings. The costs of renting out property may include:

• Letting agency fees
• Landlord insurance
• Safety checks
• Property maintenance and repair
• Cleaning costs
• Legal fees
• Landlord income tax
• Stamp duty
• Valuation
• Property survey
• Mortgage arrangement fees

It might sound like these costs would be overwhelming, but your rental income should make up for these expenses in a short space of time. Additionally, the government will offer some relief from these expenses, as many of them are tax-deductible. This includes repairs, maintenance, insurance, replacing contents, and any necessary professional services like accounting.

Buying property with a mortgage

Buying a property to rent it to tenants is very different from buying your own home, and the mortgage you take out will reflect these differences. Although you can buy your investment property outright, most landlords will often take out a buy-to-let mortgage. Most buy-to-let mortgages work in a similar way: they are interest-only, meaning you only pay the interest on the loan as it accrues each month, ideally from your rental income. You will then pay off the full amount of the mortgage at the end of an agreed term. This type of mortgage is more expensive overall, but with lower monthly repayments. At the end of the term, you can cover the debt with the profits you’ve earned from your investment, or by selling the property.

Your specific mortgage plan will depend on several factors, including the size of your initial deposit, personal circumstances, and rental income.

Renting properties out, picking good tenants

Being a successful landlord will be much easier if you have the perfect tenants. If the occupants of your property are late with payments, damage your property, or incite complaints from their neighbours, you will struggle more than is necessary. In an ideal world, your tenants would be respectful, reliable, and self-sufficient. But how can you find the perfect tenant?

Getting a credit check is an excellent way to determine how likely they are to be able to cover their rent each month. There are multiple services you can use, which will take a look at their

credit history and tell you how responsible they are with their money and whether they have a history of racking up debts. You can also conduct a background check to determine if they have been convicted of any criminal offences.

Asking for references from previous landlords is another wise option, as they will be able to tell you if prospective tenants have a history of not paying rent or mistreating the property. If this is their first rental, you could get a similar picture of their character by asking for an employer reference.

In addition to checks and references, it’s essential that you interview your new tenants as well. Ask them some basic questions about them and what they do, and this will give you an indication of their characters. Trust your instincts. An applicant could be perfect on paper, but if they don’t feel right to you, you shouldn’t be afraid to walk away.

Health and safety

As a landlord, you have a legal, professional, and ethical obligation to ensure the health and safety of your tenants. You need to provide safe accommodation for them and ensure you have taken every precaution to minimise risk. All equipment and fixtures need to be safely installed and maintained by properly registered professionals. The contents of your property need to meet fire safety regulations, and there need to be working smoke detectors throughout the home. To minimise the fire risk you must ensure there are fire escape routes with clear signs placed to denote this. One potential health risk that is easy to forget is damp and mould, which can cause respiratory problems. You must make sure the property is well-ventilated, especially in kitchens and bathrooms, and that you check periodically for signs of mildew.

These precautions are your responsibility, and if you fail to act on them, you run the risk of your tenants taking legal action against you.

Gas and electricity

Although your tenants will pay for the gas and electricity they use, in the periods during which your property is vacant, you will have to foot the utility bills. Choose a plan that meets your needs. You have a variety of options here. You could simply ask your tenants to pay their energy bills, based on what they use each month, or you could pay it yourself and include these bills as part of their monthly rent. The former option is much simpler for everyone, as your tenants can simply set up a direct debit. If you choose to include energy in the rent, you need to be careful not to overcharge, as you are legally only allowed to bill them for the energy they have used.

All gas fixtures must be inspected and maintained by a registered engineer, with a safety check carried out each year. Regarding electricity, you are legally required to ensure all electrical systems are safe, with an inspection from an electrician every five years.

Rental and tenancy agreements

Once you have found your tenants and got your property in order, the final step is to draw up a tenancy agreement. This will outline the responsibilities of both parties and by signing, you have committed to upholding your obligations as a landlord. The terms of the agreement will depend on your property. You might wish to add your own clauses such as a rule on no pets, but everything must be in line with the tenant’s legal rights. For this reason, it’s a good idea to seek legal advice to ensure the contract you have written up is above board.

Financial advice

Becoming a landlord takes a lot of hard work, and there will be a lot of new knowledge to learn and skills to wrap your head around. The biggest challenge is financing a property to rent out, while ensuring you remain legally compliant at all times. It is a good idea to seek financial advice from a mortgage broker or financial advisor to help you make the right decisions. A professional will be able to give you advice on the right mortgage plan and assistance in accruing the capital necessary to cover your initial deposit.

Get help

If you are looking to enjoy the freedom and financial benefits of becoming a landlord, talk to one of our experts today. Click here to arrange a callback.

The post How To Become a Landlord: A Complete Guide To Renting Out Property appeared first on Buy To Let Tax Accountants.

Can you get a mortgage on a commercial property?

There are many reasons as to why a business might look to invest in property. They may be tired of paying rental sums to a landlord, while also feeling restricted in what they can or cannot do with that property. They may need to expand and see this as a vital new business opportunity. It might be that a business has bespoke needs, and they require ownership of a property to put those plans into action. Whatever your reason, making this assessment can be an exciting time for any firm.

This is where commercial mortgages come in. They often come in two variants, variant rate or fixed rate terms, the latter often only lasting a set amount of time before the variables begin to kick in.

The benefit of opting for a commercial mortgage is that if your property increases in value, your business capital will also increase. This means that interest repayments will be tax deductible. It could also be that thanks to your ownership of the property, renting areas of your business or extending your potential utility over its income streams is a real possibility, lender-permitting.

Of course, we cannot expect commercial mortgages to operate in an identical fashion to residential mortgages. Commercial mortgages usually sport a higher rate of interest due to the increased perception of risk by lenders. This is why larger deposits are often looked on favourably, with a regular minimum of 20% or even more being provided as a baseline measure. Furthermore, depending on your lender or broker you may be expected to pay further fees and additional costs. Choose a broker that puts transparency first.

Big or small, we have no doubt that there are commercial mortgages out there for you to appropriately use. You just have to be ready to search the market and to compare your options, so to speak.

Types of commercial mortgages

The two main types of commercial mortgage are known as owner-occupied mortgages, and commercial buy-to-let mortgages. Let us consider what they both offer below:

Owner-Occupied Mortgages

It’s not uncommon for businesses to purchase the property they already operate in, or for them to purchase property that will become a base of operations for them. If your business is planning to move into a property, lenders may look at that favourably.

Commercial Buy-To-Let

It’s also not uncommon for businesses to purchase property to let out to another business. This is what commercial buy-to-let options are for.

It’s important to remain mindful of the length of your terms, what kind of commercial finance may be required, and the minimum or maximum terms afforded to you.

What’s the difference between a commercial mortgage and home buyer’s mortgage?

It’s really rather simple. A baseline homebuyer’s mortgage is a loan that is secured against the residential property in question. This means that the lender has some collateral if you miss payments or other contributions required of you.

A commercial mortgage is a loan secured against the commercial property, but it can also be used to re mortgage said premises when hoping to raise capital for your business. This is often referred to as ‘releasing the capital.’

While both sets of mortgages work similarly in principles, there are important differences, such as the length of your contract, the upfront deposits, and the fact that a business can often put its liquidity at risk if failing to meet business demands.

How to get a commercial mortgage

When pursuing a mortgage opportunity, it’s always a good idea to look at it from the eyes of your lender. What makes you an enticing prospect? Can your business be trusted? Do you have a history of breaking even or of making profit, and do you have enough of a deposit to offer? Can you meet the repayment terms of the loan?

More than taking your word for it, lenders will often require a comprehensive business plan that demonstrates your lending worth. This might also involve a professional evaluation conducted by a third party.

You may find a commercial mortgage via:

• A commercial lender.
• A challenger bank.
• A specialist lender.

Remember that depending on the source you follow, you may be given a loan with differing terms. This is why using a broker is often a smart way of browsing your options. A broker can also verify you themselves, leveraging their great reputation to better connect you with lenders and make the deal happen. They will charge a fee for their efforts of course, but often they may be able to connect you to a more favourable deal.

What deposit will I need for a commercial mortgage?

This is somewhat similar to asking how long a piece of string is, as it all depends on the context of your situation. Depending on the length of your mortgage terms, your credit profile, your business plan and situation and the property you’re hoping to finance, deposit valuations can differ. Usually, 25% is the guideline.

Would a buy-to-let mortgage suit me better?

If you do not intend to buy this property through a business entity, buy-to-let mortgages can often be a great option.

Things to Keep In Mind

• Not all loans will cover the full extent of the property. Some may cover 80% of the value for instance, helping you gain more favourable repayment terms. It all depends on the lender.
• Certain schemes, such as funding for lending provided by some banks, may help reduce your interest rate.
• Bank of England rates can affect lending terms, which is important to note in 2020 especially as injections into the economy following the onset of Covid means this is a great time for those looking to borrow.
• Arrangement fees will often apply and must be accounted for within your search
• Commercial law differs in most countries and must be adhered to.

Contact

What are you waiting for? To help us find the best loan terms for you, you can contact us at 020 3903 4292 or use our contact form.

The post Compare Business and Commercial Mortgages From Leading Banks appeared first on Buy To Let Tax Accountants.