ASK511: Am I wrong to be scared? PLUS: Can this trick cut my tax bill?

0:02Rob Bence:Hi, I'm Rob. And I'm Rob.

0:03Rob Dix:And this is Ask Rob and Rob.

0:06Rob Bence:Hey everyone, welcome to Ask Rob and Rob. This show where you get your wonderful questions in, we give you some heartfelt answers, some answers with effort and care returned to you for this wonderful format. And this wonderful format has been going for a long time now. So let's keep this show on the road. Let's get your questions in. Rob, can we get a quick reminder how our dear listeners can get their lovely questions onto the show?

0:28Rob Dix:We sure can. All you've got to do is go to propertyhub.net slash ask. That's propertyhub.net slash ask. You can send us a written question for our Sunday Times column or our favourite option, send us a voicemail, because then we can answer you right here on the show.

0:41Rob Bence:Right, let's listen to our first question in from AJ.

0:45Rob Dix:Hi, Rob and Rob. My name is AJ. I'm one of your very avid listeners. Thank you so much for all the educative content you're putting out there week on week. Following your advice and following quite a lot of education that I've done myself, I was able to take the plunge into the buy-to-let space last year, getting two properties. Both of the properties were bought using the bridging loan, and I've now come to remortgage. Part of the requirements that the lender wanted was for me to take independent financial advice with regards to the mortgage, and I found that very scary. I had a meeting with the independent legal advisor and following all the risks that were outlined.

1:24Rob Dix:It was quite scary as my first experience. I just wanted to know what it felt like for you as your first experience with independent legal advice. I went ahead with getting the mortgage anyway, but I just wanted to see if this is something unique to me or if this is universal.

1:40Rob Bence:Thank you so much for all you do. Many regards. AJ, you know, fear is a funny thing, right? Because we all fear different things. And to some people, that fear will seem crazy, but then their fears will seem crazy to you. Everyone's got different tolerance to risk. When you said that you bought with bridging loans, that kind of made me go, oh gosh, I've not done that, that's brave. But then you talk about the independent legal advice and I was like, oh, that feels fairly standard. If I'm being really honest with you, that's how I reacted to your question. So you've done something that makes me feel, maybe not terrified, but a little fearful and I'd be super cautious using a bridging loan because there's a lot of risk there.

2:21Rob Bence:But sitting down with a solicitor for them to read through a legal agreement is something that I've done so many times I don't even think about it anymore. So first of all, I think it's just interesting to observe how we're all different. And there's nothing wrong with me being a little bit cautious on one and you being a bit cautious on another. We're just all very different people. First, let me quickly explain to everyone what you're going through just in case they haven't invested yet. So when you get a buy-to-let mortgage for a limited company, your lender will ask you to get ILA, independent legal advice, separate away from them.

2:54Rob Bence:And a solicitor will go through the agreement with you to make sure you understand what you're signing. And because that solicitor needs to cover themselves because they're guiding you through that legal agreement, they need to point out all the risks, all the downside, all the scary parts, if you like, of that agreement to make sure you understand what you're going into. and when you go through that if you've not done it before it can be a little intimidating you're like what am i signing up for like who is this lender like why are they making me take all this risk but actually if you had that same advice in different areas of your life you probably feel the same so for a residential mortgage life insurance travel insurance if you understood like everything involved for every legal agreement you sign you'd probably be really cautious with with many things But if I'm being honest, the vast majority of us do not read through the majority of the things that we sign.

3:45Rob Bence:You may have a scan, but are you going through every single bit of detail to truly understand what you're signing up for? Even when it comes to software, we just tick boxes all the time, don't we? But we don't really understand or take the time to understand what we're signing up for. So because you're forced to understand what you're signing up for here, and that legal advisor is on the hook, because if they don't explain it properly to you, you could go back at them or the lender could go back at them. They have to point out every single risk just so you truly understand what you're signing up for.

4:18Rob Bence:But I bet if someone actually took you through all the detail of a bridging loan agreement, you'd probably lose sleep. But because you weren't made to go through that process, it's not bothered you as much. I think with many things in life, once you've done it and you get used to it, it no longer becomes a scary experience or at least that feeling softens. It's fairly standard. It's fairly standard to go through this process. Some people will be spooked by it, others won't. But what I do think is if you understand that it's only because you're forced to go through this process, all the risks are being pointed out to you.

4:55Rob Bence:That's why it makes it extra scary. And there are obviously risks to any agreement you sign, but I don't see a buy-flat mortgage being a high-risk product because you have been stress-tested, you've put a deposit in there's plenty of equity built in the rent is going to cover your mortgage and that's been as i say been stress test so not the most scariest thing you will do in your property career but it's just pointed out to you how scary it is hopefully that makes sense aj hopefully that helps you and makes you feel a little more comfortable with the process but once you've done it a few times i promise you it'll get easier great answer i'm sure that's

5:30Rob Dix:left you feeling a lot better AJ. Let's see what we can do now for John. Hello Rob and Rob, Rob Squared. So I just wanted to ask about properties in your own name and in a company. I have a house in the north of England that I bought in 2013 for around£60 ,000 and it's probably doubled in price to about£120 ,000 according to Rightmove. Now the situation that I have at the moment is that ideally I would like to put that into a company to be tax efficient. Having talked to my estate agent, they suggested that because there's no mortgage attached and that I own the property myself, I could sell it to myself at whatever price I define.

6:10Rob Dix:So then obviously if I use a director's loan in a company, I could then just buy it for£60 ,000 again and not be subject to capital gains. My accountant has suggested that that would be unwise and that HMRC might look at that as an issue of avoiding tax. So I just wanted a little bit of advice on that if you have any. Obviously, it would be ideal to have the property be tax efficient and be the start of an extended property portfolio. Now that I'm back in the country, I'm looking to extend. But obviously, I don't want to start a company and immediately be under scrutiny by HMRC. So if you've got any advice on that, it would be very much appreciated.

6:53Rob Dix:I suspect there's probably a lot of legacy landlords as well in similar situations. So it might be a useful topic to cover for yourselves as well. John, there is a reason that we don't take tax advice from estate agents. That is definitely not a good piece of advice. And I'm glad you've already got a second opinion from your accountant, because this is not something you want to do. The reason for that is that while the estate agent is right, that you can sell it to your company for whatever price you choose. Because it's a related party's transaction, you and your company are linked. That means that for stamp duty purposes and for capital gains tax purposes, the market price, the price that you agreed to pay is irrelevant.

7:32Rob Dix:And what matters when it comes to those taxes is the market value of the transaction. So that means you could sell the property to your company for a pound, but your taxes should be calculated on£120 ,000 if that is the value. So there's really no grey area about that that's just how it is so the follow-up might be well are they actually going to notice i know you're definitely not saying that john but people might be thinking yeah but are they actually going to know like they don't know the property how are they going to know how much it's worth well it's true when it comes to tax you can sometimes get away with things but that is a high risk strategy because it is a related party's transaction and you have to tick a box on all the forms saying that it is then that immediately puts it in a different category for hmrc which means they look at it more closely because they know there's the potential for this kind of thing to happen so when they look at it and go huh this was last sold nearly 10 years ago for 60 ,000 and now it's still worth 60 ,000 that's odd at that point they might come back and start asking questions which as you've said is something that you definitely want to avoid so as you said john there will be lots of people in similar situations looking to move properties into companies who would love to be able to do something like that estate agent has suggested but definitely wouldn't recommend it so i would definitely advise talking to your accountant about your longer term plans and figuring out is it worth making this move, paying the full rate of tax available to put yourself on a better footing for the future, or is there another way of going about it to help you achieve your goals?

8:56Rob Dix:So John, thank you for the question and I hope that helps.

8:59Rob Bence:Well that's just done for another week. We'll be back with another Ask Rob and Rob, same time, same place next week. So until then, take care, have fun, bye-bye. Bye-bye.