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.