Expert shares tax strategies you should be using

0:01Hey everyone, it's Rob B here with Rob D and you are listening to the Property Podcast. This week we're getting into it. It's the big topic of tax. You all want to know what to do. I'm going to get into all the stuff that matters. Inheritance tax, limited companies, setting up trusts. It's all in here. This is gold.

0:27welcome to the property podcast thank you for joining us in case you don't know we run a company that buys more than 100 million pounds worth of property for our clients every year you can find out about that at propertyhub.net slash invest and as a result of doing that we know what's on your mind when it comes to tax we hear all the questions all the concerns all the scenarios that people are trying to plan for what we can't do is answer all those questions ourselves But what we can do is bring on a guest who can. The conversation that's coming up has got the potential to save you a lot of money.

0:56So make sure you stick around. It's time for our You Story of the Week now. And something that I don't think I've ever said before, Bradford is top of the table. No offence to anyone in Bradford, just don't remember you being top of any tables before. But your time is now. Because according to On The Market, Bradford Property Market retains the top hotspot crown. Retains. Didn't even know it had it, but it retains it. What is all this about? Should you now be planning into Bradford as your next investment destination? Well, it's about activity. So on the market have looked at the areas that are seeing the most activity right now, the most inquiries, the most searches, compared to the amount of listings.

1:35And then they take that as the most active or potentially active markets in the UK right now. What is no surprise to me is the areas that are listed here in the top 10. so hearing that Bradford is number one may come as a slight surprise to you because it's not an area we've mentioned before but it is affordable there are some really strong areas of Bradford and of course it's close to one of our key hotspots Leeds and the rest of the list has a similar theme in fact Coventry is number two Coventry is city in its own right of course but absolutely benefits from the powerhouse that is Birmingham then you've got Burnley benefiting from Manchester Liverpool super affordable is four and Newcastle again super affordable five and the list goes on to Wigan, Sunderland, Leicester, Stoke-on-Trent and Rochdale all those areas are in the Midlands or the north which at the moment are the most affordable markets based on nearly every metric you look at they offer the best yields at the moment and that is why we are investing there and while we might not invest in every location in that top 10 we would look at a lot of them So an interesting guide.

2:41We'll link to it in the show notes. And while the number one, Rob, may have been a slight surprise to you and I and people listening, the cold spots, the areas with the least activity, are pretty much no surprise at all. Not at all. No, condolences to Brighton, which sits at the foot of the list. Southampton Sea is down there. Bristol has dropped into the bottom 10. You've also got Worthing. You've got Bournemouth. It's not hard to see what all these places have got in common. and it really is so screamingly obvious where there is value in the market. You can take issue with any particular survey or statistic or way of measuring, but absolutely everything from every angle is pointing at the same thing, which makes it pretty clear where you should be focusing, which is why we focus where we do.

3:22And if you're interested in our own hotspots and exactly where we're focusing our attention right now, you can find that covered over on our YouTube channel. So just head over to YouTube and search Property Hub. Today, we're very lucky to have an expert on the show. We have Nadeem Razik, head of tax at ProVesta. He's worked with hundreds of property investors working on their tax strategies, and he's going to bring those strategies to this very podcast. You get this stuff for free, guys. You're going to be getting strategies on limited companies, of course. We're going to be getting into more complex stuff for inheritance tax, things like trusts, speculation about what may be ahead.

3:55There's a lot covered in this episode. Get your pad and pen out. You're going to be taking notes. You're going to be learning, and you're going to be more advanced by the end of this podcast. Rob sat down with Adim and got straight into it. So, Adim, research shows that around 70 to 75 % of landlords, depending on which survey you look at, are buying through limited companies these days. Obviously, that's a huge change from a decade ago. What's been the main driver of that? Yeah, you're quite right. We've actually done some scraping ourselves through a company's house and actually say 8 out of 10.

4:26So you're pretty much bang on there. 8 out of 10 new buy-to-let properties are being posted through a limited company. so it shows how quickly they've become really really popular and you're quite right because i don't want to go through the same things again but mortgage interest relief the section 24 stuff that came into place back in 2016 so almost a decade ago now time's gone so quick was a real driver initially because it really pushed a lot of landlords with interest-only mortgages into a position where they really were making considerably less profits because the mortgage interest was restricted to 20 of the total amount and all of a sudden their profits went through the roof and And they were looking for ways to sort of keep that minimized or to have it minimized going forward.

5:04So that in conjunction with obviously income tax rates going from 40 to now 45%. So if you're a high rate earner, you are paying considerably more tax in your personal name as opposed to a limited company. Obviously, back in 2016, corporation tax was capped at 19%. It's now a maximum of 25%, but it's still considerably lower. So anyone who's got a portfolio of properties in a limited company can sort of expect a maximum corporation tax rate of 25%. as opposed to in their personal name at 45%. So you can see where the savings to be had. Let's go a bit more slowly through the main driver that you talked about, which was the restriction of interest relief.

5:41Because you'd think 10 years on, everyone knows about this by now. But I don't think that's necessarily the case. And you hear people talking a lot about like phantom profit. You're paying tax on profit you're not really making. Can you explain that scenario? You're quite right, because a lot of people still don't really fully understand the concept. They know that it's pushing other people in, and then maybe they should be doing the same thing as well. And the phantom profit, you're quite right, because actually what it used to do prior to 2016 was 100 % of your mortgage interest was a deductible expense.

6:08So if you made£20 ,000 profit and had£12 ,000 interest, i.e. interest-only mortgages, your profit was£8 ,000 and you'd pay tax on the£8 ,000 profit. Now you pay tax on that full£20 ,000 and you only get 20 % tax credit on that£12 ,000 interest. so when you mention the phantom it almost becomes rather than paying tax on 8 000 you pay tax on 20 000 and that 12 000 interest which i talked about is actually capped at only 20 so that comes after your tax liability has been worked out so as you can tell those people with interest-only mortgages considerable impact on their tax affairs definitely and people talk about it as paying tax on your turnover rather than your profit which isn't quite true because there are still things you can offset but you see where they're coming from.

6:53But because of this tax credit, that means that if you're a basic rate taxpayer, the net effect is kind of the same, right? So it's higher rate taxpayers who get hit. Yes, exactly. For basic rate earners, you're going to get that 20 % tax credit. So your net difference is the same because you pay tax at 20%, you've got 20 % tax credit. So the difference remains. In the example I've given you, where it's really impacted people is because we're now paying tax on the 20 ,000 as opposed to the 8 ,000, that 20 ,000 pounds potentially could push you in to become a high rate earner so where historically it was only eight thousand pounds worth of profit it kept you within the base of great threshold because we're now showing twenty thousand pounds worth of profit it's pushing you into the next threshold so you're now in a position where you're actually paying tax at 40 on an element of your income and only getting a 20 credit on return on that interest so the net difference is much bigger yeah and even now all these years on, we still get people writing into us saying, oh, I just bought a property a year ago and I've realized now that I should have maybe done it in a company.

7:55From people you've worked with, give any kind of examples of like what the real impact of this is, just like how much of a difference are we talking about? Does it tip people into a loss-making position after tax? Yeah, I mean, I'd probably say 70-80 % of our conversations over the last decade or now has been all about what their portfolio is now looking like because those profit making properties are now breaking even some loss making and it's made property landlords aware actually take a step back and say look we just need to reassess our entire portfolio here because from the example i've given you a lot of our landlords are sort of have got interest-only mortgages okay and that's having a big impact because historically they keep their profits down that's not the case anymore and there's no magic wand to do anything about that all the other expenses that they could allow for and claim they still remain but there's not a magic wand with that interest deduction that's just all of a sudden disappeared.

8:43And actually rents have been increasing. So not only have their profits been going high because their general interest deductions have disappeared almost for them, and therefore they're kind of in the position where they're breaking even or even loss making. So we have a lot of conversations with people about doing a portfolio analysis, looking at some of their weaker properties, deciding whether they should keep them, transfer them to other people, sell them completely, remodel them into a different type of property maybe, sort of like Furnished Holiday World or HMOs, etc. so there's a lot to be done but yeah you certainly need to take a back step and really work out whether those properties are still profitable for you and has it become more of an issue over the last couple of years as mortgage rates have gone up right rents have gone up mortgage rates have gone up so you previously would have been getting relief on those higher mortgage costs and now you're not so has that made the impact bigger or is it the same as it ever was the impact is pretty steady because those ones who had low interest rates now paying more they're still losing out on the relief that they were getting.

9:39It just means now they're not actually losing out on more because potentially they're paying more interest because their rates have gone up. I mean, that's a really good point in terms of the mortgage interest rates because actually we've seen a massive shift over the last decades where mortgage interest products in companies are in line with individuals now. So getting a mortgage in a company 10 years ago would have really put people off to say, it's all very well you're saying here, Nadine, but actually if I get a property in a company, I'm going to be paying twice as much on my mortgage. So I'm saving with one, but I'm giving away with another.

10:07but actually in that time mortgage interest rates and products are really really sort of in line ultimately now with personally held properties so it's making it more sort of beneficial to kind of think about actually not having in your personal name because those benefits of having in your personal name almost completely eroded away by your numbers like eight out of ten properties are in a limited company which is huge but then that leaves two out of ten that are not so are those two out of ten not paying attention or are there actually good reasons for holding property personally still and this is why we have these conversations with everyone because not what applies to you won't necessarily apply to everyone else and you know buying properties in your personal name it's not a no-no it's just having a understanding of what your plans are for the medium and long term because again we quickly talked about basic rate earners not being impacted by mortgage interest relief for example and now if that was one of your major drivers to use a limited company then actually buying your personal name is not the end of the world there are still benefits sometimes buying in a personal name you know it's quicker it's a bit easier you know if you do sell it you get capital gains tax allowance and if you were a basic rate earner and you've got an interest mortgage on it actually there's no net effect because you're still going to be getting the full mortgage interest relief but if you're in a position where you've got sort of ambition to grow your portfolio and you're going to look at two three four five as well as having an income unemployment income or self-employment income on the side the likelihood is you're going to exceed that basic rate threshold which at the moment is around 50 000 pounds in total earnings so you can it doesn't take a lot to tip you over into that 40 % threshold, at which point it then makes sense to use a limited company.

11:37Yeah, for sure. I think we should talk about probably the major drawback of limited companies from the perspective of someone who wants to take an income from property, which is that the company will be paying tax at a lower rate than a higher rate individual taxpayer would. But then to get the money out of the company, there's additional tax there as well, right? This is really important for people to understand. So if you never use a limited company, and you don't understand how a limited company works, it's really important because it's great me sitting here saying, you know, don't pay tax at 45 % of your personal name, pay 19 % in the company.

12:07But from a tax planning point of view, we need to understand that the company is paying 19 % on its profits. But then if you're withdrawing money out of that company in the form of a salary or dividend, you've got to account for that. For every pound that's actually withdrawn from the company. So if we have clients who say, well, actually, yeah, great, I'm going to use limited company, but I need all that money back out again. Well, we need to do some calculations here, really, because yes, we've paid tax at 19%, great. But if we're pulling all of that back out into our pockets again, there's potential salary tax, which is again, 20, 40, 45%.

12:36And then dividend tax, if you're taking dividends out in the form of profit extraction, and that's 8.75 up to 37.5%. So it gets very expensive. So you could negate all the benefits of a limited company if you just start taking lots of money out at the company. So what we always say to people is, plan what you need. don't take too much out than you need to and have one eye on the fact that you'd be taking money out of the company as well it seems to me i don't know if you agree that actually making a monthly profit from property like taking money out and spending it on holidays or whatever is so much harder than it used to be because it's natural that you're going down the company route for so many reasons but then you don't want to take the money out because you're paying so much tax on taking it out and so property from what we've seen is becoming far more of a long-term wealth generation play whereas 10 20 years ago it was very common to have a property on the side to supplement your income yeah but that just the maths on that just doesn't seem to work anymore yeah and you're quite right and this when we do our tax planning when we create a company for someone do we do a bit of sort of family planning because obviously we can come to this at another point where we talk about actually how you can really get the maximum benefit from a limited company and one of the things we talk about is family planning so we talk about actually if taking money out to supplement your lifestyle now is really important well what can we do with the company now to set it up in a way where we've got other shareholders who are a little bit more tax efficient place to sort of extract money out now if that is really important to you figure out top of my head seven eight out of ten landlords we talk to it's all about pretty much the medium long term you know trying to build a portfolio up nice to have that supplement income now but actually it's more so so they can retire from their full-time jobs or to build up a wealth for their family or to quit their full-time job so they can do that full-time and then start withdrawing the money out that business so it is about balancing what's required for you the long-term planning is great for a limited company but yeah we need to have those conversations with the people who want to take a lot of money out of the business because we just need them to be aware that there are double tax issues and we don't want them to shoot themselves in the foot yeah that way for sure let's cover off some of the other perceived limitations or drawbacks to limited companies so you've talked about mortgages i I think there's a view that mortgages are way more expensive for limited companies, which, as you said, used to be the case, but not anymore.

14:56There's not really a big difference, if at all. There are obviously costs that come with running a company. So at what point does it make sense to have a company? If you are just going to buy one property and that's it, does it make sense to have a company or not? Yeah, I wouldn't necessarily say if it's down to one property or five properties. I think it comes down to numbers, unfortunately. as being an accountant, I'm going to say that, but it does come down to numbers because when we talk to investors all the time, I always start long-term and sort of work our way back. Now, the key number is sort of the basic rate threshold.

15:27If you're someone who's earning a£25 ,000, £30 ,000 full-time job and you only really want to just buy one property, you think, do you know what? We just want to buy one. We think it'll do the job. It's just a bit of income I've got. I don't know what to do with it. I want to buy a property. We'll do a bit of number crunching. And actually, in reality, it probably might just make sense to buy in their personal name if there's no long-term plans to sort of progress and buy more. Most investors want to buy refinance buy another one refinance or they get that kind of itchy syndrome where they get one and think oh yeah this is great let's buy another one and all of a sudden they're buying five six properties so we need to make people aware of that if you are potentially going down that route what does that mean if you do end up buying in your personal name as opposed to a limited company so there's no kind of break even point we do make people aware that obviously yes by having in a limited company things like account so if you are running a personal portfolio as you know you do a self-assessment tax return you declare your profits and expenses there and it's generally quite cheap and a lot of people do it themselves for example because they think they can do it themselves limited companies a little bit more faff involved because you've got financial accounts to be submitted to companies house corporation tax returns to be submitted to hmrc you need to be fairly experienced to know what you're doing to make sure your accounts balance etc so a little bit more bookkeeping involved and therefore you've got those costs to kind of factor in so we normally say factor in sort of eight nine hundred a year for sort of financial fees obviously historically used to be mortgage interest rates were considerably more they're pretty much even now so almost on a case-by-case basis i wouldn't say whether it's one property or five properties it kind of will depend on what your long-term plan is if someone goes like right okay i'm just starting out i know that having a company is right and i'm going to go out and buy my first property what's the sequence of events what's the right time to actually set up the company and how long does it take what does it involve no great question and unfortunately we have a lot of conversations with people when it's not i won't say too late but you know when time is of the essence in terms of setting up a company we at provesto it takes sort of 24 48 hours if it's quite complex business in terms of multiple share share classes company house can maybe take a few days but in most instances within a day you can get a company's house certificate with your registration number on then it's a case of just going opening your bank account now some bank accounts can drag their heels in a lot of them do it pretty quick so that's your kind of first step so get the company set up get your bank account set up and then sort of get some money in there as your deposit so you're ready to go and purchase sort of property number one and of course we get loads of people come from a sort of post auction and they haven't done any of this and the auction are giving them seven days or whatever to complete so we're working backwards straight away so if you are pretty sure and I'm saying you know sort of 80-90 % sure limited to companies where you're going to be buying from we always say just get it ready get it prepped you know there's lots of questions to go through potentially when setting up a company because it can be as simple as you want it could be as complex as you want if you really wanted to do a set that company up for a smart family planning way so get that get your advice get it set up get your bank account set up and then you're pretty much ready to go you know you get your money get some deposits in there which is a director's loan and you're ready for your first purchase but yeah depending on back to your question how simple or complex the company can be it can go from anything from a day to sort of a week but yeah sounds like early the best because worst case you change your mind you shut it down it costs you a little bit of money but it means that you're ready to go and can take advantage of whatever comes along and that's what i said if you're still 80 90 there and you know you're gonna be using limited company get it i mean the worst case scenario is it ends up going 12 months you've not bought property because you've been looking you haven't found what you want you've got to prepare some accounts still because the business is obviously active now even though it's not trading you'd have to file some dormant accounts pretty cheap negligible cost in the grand scheme of things um so you've got that final requirement to be aware of and you mentioned they're funding the company i think that's an interesting question as well so you've got a company how do you get money into the company because the company doesn't have any assets.

19:03And so how does it buy the property and what do you need to think about around that? What you've got to remember is that this company you've opened is a separate legal entity. So although it belongs to you, it's not you. So you're going to go out and buy a property using that limited company. So the limited company needs some funds to go on and purchase property number one. So if you need a£25 ,000 deposit to buy that property, ultimately you're going to have to fund it as a director of that business, transfer£25 ,000 into the company and you treat that as a director's loan. So that director's loan is effectively money you as a director have put into the business and that would be extractable withdrawn whenever you want tax-free so we talked about taking money out the company and being accountable at every stage this is classed as a director's loan so if you put 25 000 pounds in you can withdraw that 25 000 pounds whenever you want and there's no tax consequence does that mean the first 25 grand of rental profit is tax-free effectively if you withdraw it yeah so obviously the business if the business generates 25 000 pounds with the profit it has to pay corporation tax on that But if there's£25 ,000 of surplus cash lying around in your company bank account and you want to withdraw that, then you can withdraw that.

20:07Yeah. Okay. So you've paid tax on your income when you've earned it. So it's there. You transfer it to the company as a loan. So no tax consequences there. And then, yeah, you can effectively take it back out again. And so you can recoup the rental profit up to the point that you've got your£25 ,000 back. Right. Yeah. So that's quite a nice advantage then because it means like, yes, we have to be thinking about paying the tax on dividends you're taking out of the company. But if I'm understanding you right, then you don't have to worry about those dividends until you've got your capital back anyway.

20:38Yeah, yeah. And of course, it's only fair because you've paid tax already on that income. It's just that you've put it into the company and it wouldn't be fair for you then to have to pay tax on that again to take it back out. So yeah, you're limited to the amount you've put in and anything over and above that. And you may decide, well, actually, I want to keep that£25 ,000 director's loan sitting in there, and I'll take it out on a rainy day. But for now, I will take dividends out, because it may be tax-efficient for you to do so, and leave the£25 ,000 in there. Why would that be tax-efficient?

21:04Well, I mean, some people, for example, if they don't have any other forms of income, and they've got minimal salary or no salary, and they're not even using their personal allowance, for example, and they've got a spouse on there as well. Well, actually, you've got£12 ,500 each between the two. That's£25 ,000 for the tax-free income that you can earn in the form of a salary and dividend. so if you've got husband or wife who've got no other form of income and want to take 25 000 to live off well use your tax-free allowance why take 25 000 director's loan out when you've got 25 000 pounds worth of tax-free allowances to use per year so in that instance we'd say use your salary allowance use your dividends allowance and then over and above that we use your direct yeah makes sense and the subject of director's loans is interesting when it comes to people who are not employees people who run their own business because this is something else that comes up a lot.

21:50We'll have clients who run their own business or they are contractors, they contract through a limited company. Talk us through how the process of setting up and funding a company works there because those individuals don't necessarily need to take the money out of the company personally and then loan it to the new company, right? Really common question because those people who've got trading that surplus cash in those are the companies that they're trading with and they want to use that cash but they can't do anything with it in that company for example you know this could be quite complex because we in some instances we talk about actually doing a bit of a group restructure here so if you're already trading through one company you've got surplus cash and then you decide actually i want to get into the property world what do i do a couple of alternatives you know one is you just loan so you do sort of a loan from one company to another you know get a loan agreement and have market value interest on there so you know you're charging interest put that money into your limited company for your properties buy properties and loan the money back once you've able to refinance and build the portfolio up so that's your simple way of doing it you know which allows you just effectively move money from one company to another the alternate could be and again if your long-term strategy applies to this is potentially creating a holding company and this is where we create sort of a group structure so think of it sort of like a triangle where you've got holding company at the top we've got two companies below it one which is your trading company with lots of surplus cash and one brand new property company which you've just need some money in so because you now created a group structure, you can effectively shift funds around that group structure.

23:12I mean, I can have a two hour conversation with you about group structures and the benefits and disadvantages of it, but really common with property investors, because when it comes to property, we need two or 300 pounds, we need tens of thousands, a hundred thousands of pounds. So that normally applies where people have got that surplus income lying around in other trading businesses. So for them, it kind of makes sense because there's more cost involved with all this complexity I'm talking about. So we don't suggest it to everyone. But if you are in a position where you've got that wealth built up then spending a little bit of extra just to get that structure in place makes absolute sense yeah it seems like a huge advantage that business owners or the self-employed have over employees right because as an employee you have to earn the money poye or whatever you pay your tax and then you get your money into the property company you've already paid tax on it as a business owner you're paying corporation tax in your trading company but then you can invest it and shift around do whatever you want without suffering any personal tax and the principle is that you've already suffered the corporation tax so the business has paid tax on that profit it's earned you've loaned it across to somewhere else we'll then generate more profit from that and it'll come a point where you will then have to extract it because if you look at that group structure diagram i've given you'd put money from the your consulting company into say a property company you generate income and profit from there and then when it comes to a point where you say actually i do want this now you know i want to go on a holiday or a cruise around the world you will have to shift that money up to your holding company and then take out yourself at that point personal tax will apply but it's allowed you to use the funds that you had surplus and actually create more wealth which ultimately is the plan right is using that the money to create more wealth absolutely and something we say on the podcast is uh we like to have a glass half full attitude to things like all the 2016 tax changes we'd rather they hadn't happened they were not particularly popular but there are advantages in that is now forced lots of people towards limited companies through necessity.

25:01But there are advantages to having companies. There's flexibility that it gives you in certain situations that you just don't have with individual ownership. We've talked about that from a business owner point of view. But maybe you can touch on some of the other aspects when it comes to structuring for inheritance and things like that. You know, when we have lots of conversations with individuals, inheritance tax is a real hot topic conversation. Because again, we're not talking about something worth a couple of thousand pounds. we're talking about a portfolio of assets here worth into the hundreds or millions of pounds and it's not just straightforward to say well i want to give this to my son or this to my daughter because it's a very transaction very expensive transaction whatever you do the benefit of limited companies estate planning there's much more flexibility in estate planning okay so you can have multiple shareholders in there you can bring children grandchildren trusts into a company and not only is that from the outset so when you create a company you can have all these shareholders actually you can do it further down the line so you can come to a point where you actually created a mass of wealth in the company and then you think oh gosh what do i do now well actually there's still ways of restructuring the company to get money out of your shares which you own into a sort of a tax efficient way and that just flexibility isn't there as an individual because as an individual you either sell a property to someone and pay cgt and then they've got to pay stamp duty or you know you give half it to someone else doesn't really do much in terms of dilution from an estate planning point of view so from that point of view it's really good obviously there's other common things which are really good in limited companies so things like corporation tax will never sort of reach those rates of income tax rates and you have a limited liability so you know if you have multiple properties where you're working with tradesmen or people you've got lots of tenants and you don't want the risk of people suing you for example as an individual landlord a limited company gives you that limited liability so you're kind of protected with this legal avail as a company and that attracts a lot of serial investors because you know they just like having that protection behind them.

26:53So there's lots of benefits from a limited company point of view. And like I said, the kind of negatives have kind of eroded away in terms of the complexities of it, the mortgages, issues of it. And I think younger landlords want to have that long-term plan in mind and limited companies takes most of the things for them. Yeah. You're right about inheritance tax being a hot topic. This is something we see a lot. A lot of people we speak to are investing with their children in mind. They want to set them up. And so people ask us a lot, like, at what point should i get my children involved with the company should they be directors should they be shareholders what's the way to think about that if you let's say that you've got children under the age of 18 or whatever it is should they be on your company from day one how does it work yeah and again this is when we talk about all these things when we set the company up with people because it depends how high on the agenda this is for people you know some people got like maybe a one or two month year old and thinking well is that something i can do later on yes this is how we do it some people have adult children or children who are about to become adults and they're really it's like the hot topic for them they really just want to get this company set up so it's all about how they pass it on to the children so both options on the table and we talk about actually the benefits not only from a tax point of view because we talked about having a company set up in a way where you can be tax efficient because you have other shareholders involved and you can take money out in a tax efficient way and that could be by having children in the company from day one okay or even grandchildren depending how old you are but if you've got young children and actually that doesn't really make sense right now which probably wouldn't then when can we do that at what point can we do that because ultimately that will come to a point where the company might be worth a couple of million pounds by the time the children's 18 and then is there going to be a big tax liability when they transfer to the children or not and those are kind of things we need to you know get people aware so there's no kind of right or wrong answer here is what i'm trying to say rob it's a difficult one because for some people it's really high on the agenda they just want to get the company set up right from day one and they know that in the next 15 20 years this is what's going to happen some people a bit more of risks sort of reverse and say, well, actually, I'm not sure about my children right now.

28:46I'm not sure whether that's the kind of route I want to go down. I might get them involved if something happens or something doesn't happen. And we just need to make people aware. So all the options are on the table. We just need to make people aware what that means from a tax point of view and how we can get around sort of potential capital gains when, if you dispose or create more shares in the future. Yeah. We can only skate over the surface of this stuff. I know this could be conversations in their own right. Yeah. Hopefully it will be one day because I know people love this kind of stuff.

29:13we've spoken on a webinar before about freezer shares about how you can basically sort of like freeze the value of the capital gain up to what it is today and allow all future growth to go elsewhere i think it's worth touching on that a little bit because i know that sounds very i wasn't going to rob but now you've now you've mentioned that word freezer this is it because this is the complexity of where we the conversation can go and actually what we don't want to do is drown people in these kind of things from day one when opening a limited company because a lot can just go way over your head but actually the importance of understanding freezer shares is quite important because those who don't have a massive inheritance tax issue burden right now we might say well actually let's not get children involved from day one because actually if you don't mind your company being worth half a million or a million pounds in your own name or you and your wife's name or husband's name let the portfolio build and let the shares build up to a certain point at that point when we can start thinking about actually we might want to freeze your shares and what this is effectively is allowing you to have your own share class which then gets frozen okay so at some point so it could be when it gets to half a million it could be when it's in 2030 at a certain time we'll then freeze the value of your shares we'll then introduce a new share class the new share class will be given to child a child b and actually what will happen is their share classes will then increase in value going forward so basically what we're doing is we're doing a growth incremental shares on the children's share and we're freezing your value and these kind of things you can set up from day one you can set up in five years time when it gets to a point where you've actually built it up to that value and you think well actually we do now actually need to do something about this it's so interesting that it's wildly complicated when you think about separating out the growth aspect from the dividend the income aspect of and all the different things you can do which is one of the huge benefits of companies because it gives you that flexibility but like you say yeah it can be overwhelming absolutely so we know we talked about having multiple share classes and those share classes allow you to give different rights to different people so it's the case of not only we having different share classes to give to children but you might want to have certain rights restricted to children so for example if you do bring in child a from day one you may not want to give them any voting rights because they're too young you don't want them to make any decisions in the business which is a fair shout but you do want them to have the equity rights because it's all about the growth so you want them to have the value increase in their share but nothing else yeah which is fine and then you can do that yeah and at the risk of just layering even more complexity on top of this and then we'll stop after this what about the role of trusts because i think having a trust sounds cool i want to trust it sounds amazing but what actually is the role of that why would you decide to do that versus not trusts are old school they've been around for ages a lot of people know about them the reason they're popular now is because when you have that amount of wealth built up in a company i'm going to talk about the wealth i'm talking about the value of your shares and hopefully when you've got two three properties those shares will have a healthy amount of value attached to them it's a case of well what do i do apart from the option of giving like quarter of my company to my children which you're basically telling me to give a million pounds to my child is there any other option which allows you to retain more control and there is so things like having a trust so rather than giving your shares directly to a child okay from the company you might decide well actually we want to give 25 of the shares declash share to a trust so actually what you've done is you've transferred the value of your company certain amount of it which belongs to a trust now the children can be benefactors of that trust but they won't own that trust so legally you've still got a bit more control power you are the trustee so you can decide at what point those benefactors the children can reap the benefits from that and this is more so for either young children or adults who are concerned about maybe children's where they get married when they don't get married etc and control of sort of assets and possession and it could all be that the trust is set up for great grandchildren so it just gives you more control inherently it's always been about cost when it comes to trust because trusts aren't simple to set up, sometimes can be quite costly, doesn't really tick the box for a lot of people.

32:59But now, so when it comes to property companies and we're talking about this kind of wealth planning, it's certainly an option for people to consider. Control and power. You're using all my favorite words. I think all this stuff about companies and the options, it's not going to be relevant to everyone. A lot of people won't be at that point. But I think it's really good to see companies as see the opportunities that are there rather than something like, oh, I suppose I've got to do this because of tax. It's actually, you can do a lot. And I think the vast majority of our clients, the vast majority are using companies.

33:27I'd say that the vast majority of our listeners will be as well. But something that I know from the questions we get is that a lot of people who've been investing since before 2016 have still got legacy properties in their own names. This is always a tricky one, right? Like you've been a company going forward, but you've still got one or more properties in your personal name, which may be causing you a problem. They may be loss making now for reasons we talked about earlier so how do you think about what you decide to do obviously you sell it you solve the problem but property investors don't like selling properties so what else can you do and these are real common questions which again we're really coming back in 2016 17 and it's still still very much so and when we kind of plan for these kind of conversations with people it does come down to numbers i mean we know a lot of people have emotional attachments to certain properties and even if they're breaking even or loss making they just don't want to sell them which is another point but when we have these conversations we do the number crunching we work out actually what is this property doing for you in terms of numbers tax after tax what's left in your pocket ultimately which is kind of the ruthless way of approaching it which but it's the absolutely right way as far as we're concerned because it's all about is this property actually worth its buck so when we do this kind of portfolio planning we kind of take a step back and we say what's it bringing in what's it costing you is there a reason why you still want it can you do something better with that property have you actually gone and bought more since then which hopefully you've either used limited company or you've done some other sort of planning to make sure you're not suffering as you have been suffering in the past so you know we think about things like incorporation so potentially moving properties to a limited company and that could be with a cost attached to it or without a cost attached to it so you know a simple scenario could be that actually somebody really likes a property they definitely want to keep it long term regardless of whether it's breaking even or making a profit and we give them the option to say well why don't you just sell it to your limited company there's going to be some capital gains there's going to be some stamp duty this is what's going to cost you do you want to do it and some might say well yeah it's worth it because actually going forward i'm going to have to pay maybe only this much tax currently i'm paying this much tax and it'll pay itself off over the next five ten years those who are kind of got a portfolio of properties there's way of creating something called a business partnership and an incorporation relief and again i can talk to you two hours about incorporation how we can move a portfolio across into a limited company and that's a potential option for people with civil landlords so those with either multiple properties or ones who it's their full-time job and we can demonstrate the business in its own right those are the kind of key things that we talk about the alternative is you know doing smaller things like you know maybe putting a deal of trust in place and doing a partnership how can we minimize your tax liability as it is but it's all about tax planning in their personal name and everyone's scenario is different as you can imagine tease people with that because i know we're going to talk about that another time So people are coming back for that.

36:05Just to finish with, I think people like to complain about their accountants. I hear a lot of gripes about like, oh, my accountant just doesn't really do much for me. They don't know what they're talking about, or they just like file the paperwork, or they seem to be more concerned with making sure I pay almost as much as possible so I don't do anything wrong rather than limiting my liability. But I'm sure there's some truth in that some accountants just aren't particularly helpful or proactive. But I think also the way that we work with our accountants is important as well. So what advice would you give people in terms of how to get the best out of their relationship with their accountant?

36:38It's really funny because a lot of the clients we get come into us is predominantly because their current accountant just is not proactive enough. I think it's really important that your accountant is proactive and is always letting you know what's happening in the world of property because it's really important because things are so fast moving and as property accountants I think struggle with change is foreseeing changes and planning so we can give the right advice. It's always a challenge and we are specialists in property. So if you've got a generalist accountant who deals with anyone and everyone, you can imagine how unproactive they would be.

37:08They'd be pretty much reactive in terms of everything they do. So an accountant is kind of ahead of the game. It's really important. And bringing ideas to the table, that's what you want as a landlord. You don't want to be giving them ideas to say this is right or wrong. You want them to be coming. And when it comes to things like minimizing tax liability, it's not just a case of basic advice like sell it, do this or do that or you know capital gains tax rates have gone up so you know sell it before it gets higher that's not necessarily the case when it comes to property landlords everything's all about what your long-term gain is so long-term plans are so we will do that kind of planning for you i think that's really important because it may well be short-term pain for long-term gain and that's really important to look at because property landlords pretty much all of them it's all about long-term goal so we're going to have to ride out a few events some you know will be good some will be bad but we can get through it and i think having an accountant who's just a bit proactive i think it's really important Wow loads packed into that one you might want to go back and listen again make sure you absorbed it all but you think we're done we're never done we always want to give you more it's time for Hub Extra and Rob you've been sitting down and watching a bit of TV what have you got for us I've not watched a good program in ages yeah I watched a documentary on Netflix which is a strong strong recommendation it's called Unknown Number the High School Catfish it is a documentary it is a true story but it's hard to believe it's a true story i can't say too much about it because there is a massive twist for the first half hour or so i was like oh yes it's kind of interesting and then whoa so rob this is a hub extra where i can't really tell you too much about why it's a hub extra but i will say go watch it so good will do i also will be watching when it's released it's going to be very soon the latest series of slow horses if you've not watched that yet go back to series one that is very very good but while i'm waiting rob i'll jump over to netflix and what's your recommendation well that is all done for another week thank you for joining us we will be back on sunday smiling at you answering your questions there then we'll be back on tuesday smiling through the microphones i'm sure you can hear it in our voices answering more questions there and yes you've guessed it we'll be back on thursday with the main event the property podcast so until those wonderful occasions take place take care have fun bye Bye-bye.

39:19Bye-bye.