How to best structure new property purchase

[damiantaylor]

Hi everyone,

I'm looking to buy a new house (priced at £375,000) and let the house I currently own as my main residence, which will bring in approx. £1,000 - £1,200 per month in rent.
I'm looking for some advise on how best to structure things.

These are my current circumstances:

I have £80,000 personal savings.
The consultancy company I own has £80,000 spare in the bank account.
The house which is worth £250,000 and has £110,000 outstanding on the mortgage.

Buying another house will mean running two mortgages so I'm looking to keep the mortgage payments as low as possible. I'm hoping the rent I receive from the house I let will cover the majority of both mortgage payments.

This is what I was thinking on how to structure things financially, but I'd love to hear other views on whether this is a good idea, or how I could structure it better.

Create a SPV to invest in property.
Loan the SPV £72,500 from my consultancy company.
Sell my current residence to the SPV for £250,000, so now I don't own anything personally and have £220,000 in my personal account after paying off the residential mortgage. The SPV puts £62,500 down as a deposit and pays £10,000 in stamp duty.
I buy the new house as my main residence, putting £175,000 down as a deposit and paying £2,500 stamp duty.
I now have a personal mortgage for £200,000 and the SPV has a mortgage for £187,500. I have £42,500 in my personal account and my consultancy company has £7,500 left in the bank account
I've purposely left fees out of the calculation.

I know this is a pretty subjective question, but if I haven't missed anything out, does this seem like a sensible way of doing things?
I'm looking to avoid massive stamp duty payments so it seems better to let the SPV buy the cheaper property, although any work I do to the new house can't be offset against tax if I own it personally - which is a down side.
Is there anything else I haven't though of?

Any opinions/advice are greatly received!

Thanks,
Damian

 

[realdeals]

Hi @damiantaylor

There is a lot to consider and it is obviously important to get the structure correct from day one or they could be financial consequences to pay. @Nicholas Wallwork who owns this forum offers a mentorship service with an initial free call to see if he can help you. He has been in the industry for many years and I am sure he can help you with the best structure for your situation:-

Nicholas Wallwork Mentorships

If 2023 is the year you’re ready to take serious action with your property investment goals, then a tailored mentorship session with leading property developer and accredited property trainer Nicholas Wallwork can help you reachRead more...

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[Nicholas Wallwork]

Hi Damian,

I like your create thinking here but this problem has two very distinct angles:

1. Tax planning
2. Business planning

Now I’m not a tax expert (but I know an excellent firm who are!). But I am an experienced developer with over 15 companies with a £30m portfolio so I’ve had a fair amount of structuring experience.

Please don’t take this advice here as formal advice it’s just a quick intro to the topic and I’d be open to a call on the subject of that helps further from here... it’s a massive subject and so many angles, not least understanding your personal circumstances properly before any advice comes close to being relevant.

First and foremost it’s highly unlikely that moving the existing house into an SPV will be the right route! Incorporation is not always the right solution despite what people may think (it seems easy and mitigates Section 24 tax so it seems on the face of it the simple route). Better routes can be to create mixed partnerships and in your situation possibly even using the primary residence rule correctly. I’m not sure what your suggesting with the private residence is even allowed within the tax laws...

If you plan on growing the business past these two properties then the structure will likely be different than if it’s just these two you plan on keeping. You may have a spouse who would need to be considered. Whether you are flipping or holding the properties makes a massive difference with which route you might take.

Sorry to add more questions than answers but this is a large subject and little or some knowledge is very dangerous without seeking the right advice... I’d need to sit down with you and do a full fact find to be able to give you any practical advice from a developers business perspective. You’d then need to get tax advice on any proposed structure, I can refer you to someone suitable there if that helps!







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[realdeals]

Hi @Nicholas Wallwork

I note that you say the structure would be different if you were looking to buy more properties or happy to stick with two. Could you expand on this please? Do you mean it would be sensible to hold 2 properties in your own name but if you were looking at a portfolio then SPVs/a company wrapper would make more sense?

 

[MechJony]

I love how you've exposed every detail about your life to get better information. I can say that your business idea looks amazing, but if you need some ideas on how to structure it better, I am sure that a forum is not the best place for you. Some of my friends have invested lately in real estate, and now their business goes amazing. I asked them why they chose this path, and they gave me the link to https://www.playlouder.com/fundrise-vs-diversyfund-vs-crowdstreet/ so that I understand how to start myself. Maybe you'll find some interesting information too.