http://www.ispeech.org/text.to.speech
Today we are taking the idea of financing to another and less obvious level. I am joined by Tony Gimple, who shares a few examples of how we can either raise or save money just by the way we structure our affairs. He talks about knowing where the bodies are buried, a perpetual tax-efficient wash cycle and hybridisation…so you can be sure that it will be a colourful image that he paints!
Seriously, the subject of incorporation into limited company structures is a very hot topic of late, however, do have a listen to this discussion as according to Tony it could be the worst decision we ever take!
Podcast: Play in new window | Download
Resources mentioned
Tony Gimple’s contacts: Less Tax for Landlords website & info@lesstaxforlandlords.co.uk
Link to the Podcast feedback survey
Today’s must do’s
Just by structuring our affairs in a certain way, we can either raise or save money for investment purposes...make sure you check out the options afforded by 'hybridisation' as outlined in today's show.
Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!
Send in your property stories, questions or moans to podcast@thepropertyvoice.net and we will try to feature YOU on the show too!
Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com if you would like to get yourself a copy to accompany this series
Get talking!
Join in the discussion, either here in the comments section below, or by emailing us at podcast@thepropertyvoice.net
Start a conversation on Twitter with us @PropertyVoiceUK or on our Facebook page
Transcription of the show
Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.
Today we are taking the idea of financing to another and less obvious level. I am joined by Tony Gimple, who shares a few examples of how we can either raise or save money just by the way we structure our affairs.
He talks about knowing where the bodies are buried, a perpetual tax-efficient wash cycle and 'hybridisation'…so you can be sure that it will be a colourful image that he paints!
Seriously, the subject of incorporation into limited company structures is a very hot topic of late, however, do have a listen to this discussion as according to Tony it could be the worst decision we ever take! So, a couple of good reasons to have a listen in today then…
Richard: Hi again, everyone and another week on The Property Voice podcast and another week about financing and another fantastic guest, joining me again today. And in fact, I say again because Tony Gimple has already been on the show, and had a fantastic response when we talked about Limited Companies in the past so, first of all, Tony, hello and welcome to the show once again.
Tony: Hi Richard, it’s really great to be here, it’s always good fun.
Richard: Indeed, it is. Really glad to have you back, so, we had a bit of a natter, obviously, before we came on air, and I enjoyed that and we won’t necessarily share all of that, but it’s always good to talk to you. With our professional head on, we were chatting recently, and of course we were talking about the whole theme of this series is about financing in property and some of the conversations that we had, there were a few things relating to that, that really struck a chord with me...that you were talking about. Of course, we had a chat and I thought, there’s not one central idea, there’s a number that can maybe fallout of 1 or 2 concepts. And I wanted to get you on, so, I think maybe you have helped me refine this; is raising finance through, and tax efficient property business structures, would you agree that’s kind of where we settled?
Tony: I think that’s right, the former becomes just so much easier.
Richard: And some of these ideas, some of them have been kicking around in professional land and forum land and some of them are very confusing, some are conflicting but I just wanted to get your take on it. And, in particular this whole idea is maybe we were start, because we have got 2 or 3 things, we could talk about but the one I’d really like to start is, the whole idea of incorporation, so let me just set the scene, people are talking about going limited, becoming a Limited Company, and in particular if you have got an existing property portfolio, in a personal, or partnership type of name rather than an existing Limited Company. So, I’m going to just let you crack on really, you are going to talk about hybrids, probably, are you? But…
Tony: Yeah, well…what I’d say now, at the moment, landlords have been getting it in the neck, rightly, wrongly, whatever that’s just a fact of life, particularly from a tax perspective, and its crystallised the situation where landlords only have 4 choices…forced choices. Option 1—stop being a landlord, had enough of tenants, toilets and taxes, I’m going to sell up, minimise my capital gains, spend some of it, live on a beach or invest it elsewhere. For some people, actually that’s the best thing to do for them. Option 2—make a positive decision to do nothing. Don’t just stick you head in the sand. Decide to stick your head in the sand. And again, for some people that’s all they can do, this, they don’t know how to move on. But for most people there are two options. One is incorporation, and the other is hybridisation. But let’s talk about incorporation first, flavour of the month. Well, for almost everybody I’ve seen, let me re-phrase that, for everybody I’ve seen, putting their existing or new buy to lets into a limited company will be the worst thing they ever do, by a margin. So, let me go through the reasons why. Let’s assume for one minute that they can, either immediately after 2 years, claim Section 162 Incorporation Relief, i.e., they are working 19 hours a week or more in the business, tenants and toilets and thus, when they change the title for their name for that of a Limited Company, they will not have to pay Corporation Tax or Stamp Duty. So, let’s just put that to one side for a sec. What are the real disadvantages? 1—you are going to have to re-mortgage, so, you have got legal fees, brokers fees, lenders fees, perhaps early redemption penalties, higher rate, because it’s now a commercial loan, less choice of lender. The lender will want a personal guarantee and they will likely put a debenture of charge on your balance sheet, so, you will find it very difficult to use your Directors Loan Account without their consent. Which may or may not, be forthcoming. So, re-mortgaging, problematical. Secondly, it’s a Limited Company so its 100% visible to HMRC. They see every penny in, every penny out, and how it got there, and they will try and tax you at every stage. The first thing will be Corporation Tax, currently 20% but it’s falling to 17% over the next 2 years. However, the Chancellor already introduced differential Capital Gains Tax for property owners, what’s to stop him doing the same thing for Investment Companies and Trading Companies?
Richard: Yeah, once he has got us all there…
Tony: Correct, there is a massive in power madness, ok. So, Corporation Tax regardless, Dividend Tax, yes you can overdraw your Directors Loan Account tax there, Income Tax, National Insurance and worst of all, because all this now is, is an Investment Company, ie, buy to let 12 months or more so, the circumstance of collecting went it’s an investment company and its totally subject to Inheritance Tax. And no amount of nasty shareholdings, opinion based trust work, will properly solve that problem. And it is what it is, it’s a tax shelter, nothing else is owning an amount of tax, trouble is, it only really works if you don’t take out income. Otherwise you get taxed at the highest rates.
Richard: You are in a cheerful mood today Tony, this is…
Tony: Sorry, you know I like the truth, well you get it out whether you want it or not… I know too many people pulling their punches and not telling potential clients, the whole truth about this. So, becoming a Limited Company, ether immediately or via a temporary partnership, which you wind up after 2 years…don’t do it. So, that really only leaves you with one choice.
Richard: Just pause there for one second, because when you said on incorporation, I think you said you can avoid, I think what you probably meant was avoid Capital Gains Tax and Stamp Duty…
Tony: You would avoid Capital Gains and Stamp Duty. But, you have got to be able to prove you qualify for it, not something you should try and do yourself, but if you can’t, you will be fully subject to CGT and SDLT and then you have moved it over into the company…
Richard: And, just to clarify…as well, you have to be active for 20 hours in that business, and as you say, if you are outsourcing a lot of work to letting agents and that sort of things, it’s very unlikely you are going to be able to prove that.
Tony: Yeah, or if you are full time or part time doing something else you are not going to be able to prove that.
Richard: That’s true…ok. So, I just thought I’d add to the cheeriness really…
Tony: That’s ok, that’s alright, trust me, this is good news…
Richard: I’m waiting for it…
Tony: When we get to the end of the story we will all be sleeping comfortably in your beds. So, I’m not going to sing you to sleep of course, right, so, let’s have a look at the hybrid. Here, what we are doing is, working in both the letter and the sprint of the law, by using existing, proven business and management structures which is a happy by-product of a tax efficient or as you choose to make them. Something we will come on to when we talk about finance later. So, what would happen, we are taking advantage of 2 particular legal conceits, 1—separate legal personality, so, you and I as human beings, are what is called natural personalities, the ability to sue and be sued. But, there are also artificial personalities, Limited Partnership, Limited Companies, trust and the like. Each has their own tax regimes, and the law allows you to arrange your affairs across these separate legal personalities to minimise the tax. Perfectly normal practice. The other conceit is the ability to separate ownership from enjoyment from control, so example—I own a pen, I give you my partnership say, the enjoyment of using the pen, but I have given my company the control over the ink, but it’s still one pen, but you have got 3 separate facets to it. It will change from being owned by one of the…either you, the partnership or the company. So, let’s say for arguments sake, Richard has a relatively modest property portfolio worth £1000000, not what the equity is but what its actually worth on the open market. £1000000 and producing for arguments sake, £100000 worth of income. What you will now do, is retain ownership of that, but you will give the enjoyment of it to you Limited Liability Partnership, which you, your spouse and your limited company which you own, are all partners. It’s called a mixed partnership. HMRC recognise this as a business structure. You have now got a £1000000 odd, sitting on the balance sheet of the LLP, from which you are allowed to withdraw money, as income, but because it’s a withdrawal of capital it’s not taxed.
Richard: So, you better say that again, I think this is the nobody issue isn’t it.
Tony: This is, this is. Ok, alright, so, you exist, the Limited Partnership exists and the Limited Company exists, which is itself a partner in the LLP. All at the same time, all in perpetuity. You give, not the ownership, the value of your £1000000 of your property portfolio to the LLP to enjoy.
Richard: To enjoy, right…
Tony: To enjoy. Now, partnerships don’t pay tax on income, only on distributed profits. But, you have this £1000000 sitting on the balance sheets. So, instead of taking your £100000 a year in income, HMRC allow you to treat that as a return of capital. As a direct result of that, it is not subject to Income Tax. You may choose some as income in order to pay tax, I choose to be a basic rate taxpayer. It’s a nice place to live here, you have got to grease the wheels to keep it that way…but that’s the choice.
Richard: So... you may be about to illustrate it, so sorry if you are, but what’s going through my head, is just playing with the numbers that you just illustrated. So, if you have got £1000000 portfolio, which you have given the enjoyment of to the LLP, and that’s generating £100000 a year in income, rental income. If I understood you correctly, you could distribute, if that’s net income, which it probably isn’t, but let’s keep it simple, if it was net income of 100k, could you distribute that 100k back to yourself as a return of capital up to the value of the £1000000?
Tony: Or whatever the value has risen to over time…
Richard: Whatever it’s risen to over time…
Tony: Yeah…
Richard: That’s what I thought you were saying, that’s what I thought you said when we first spoke about this and I was just checking…
Tony: It’s a divided…
Richard: So, that million becomes the equivalent of 100k tax free income…
Tony: Yeah…
Richard: Ok, I did understand it, well done…
Tony: Excellent, you are clever than I thought you are. Which is better than looking cleverer than you are…So, you must make a profit clearly, and some of this profit you will pay to the limited company, it is after all a partner. Where you will pay corporation tax, 20% but we know, is falling. So, let me give you an example, let’s say for arguments sake there are 4 shareholders, you, your wife, 2 adult kids, whatever. Albeit they haven’t got much power. You pay £25000 to the company, it pays Corporation Tax, leaving £20000 which you then distribute to each of the shareholders, £5000 each, as dividends, no tax. Now, after 2 years, all of the value of that £1000000, is zero in your hands, albeit you have still got ownership, and £1000000 or whatever the number is, in the value of the shares of the company. But because HMRC recognise this as a trading relationship between you all, and that you have got a written business plan and that you are managing it and that your sole purpose is not to avoid tax, but to maximise your wealth of tax efficiently as possible, the whole thing becomes Inheritance Tax free.
Richard: That’s a nice spin off benefit.
Tony: Yeah. And for some our clients, who actually aren’t going to make any savings whatsoever by doing it, because you know, they are already basic rate taxpayers, and changes to interest relief won’t affect them, but capital values as such that they have an Inheritance Tax problem, it still works.
Richard: Yeah. But in the context of financing, that’s where I was kind of going...ah you have a piece de resistance do you?
Tony: Absolutely, absolutely. So, let’s have a look at financing now. Doing it this way, you can still raise finance in your own name. Much easier to do, much more flexibility however you have got to show income at some point, otherwise you will have a real trouble raising the money. £25000 minimal household income I believe it is these days. So, let’s give you a worked example. Last year, let’s say you should have been an advanced rate taxpayer, but because of the hybrid and running it as a business, you chose to pay zero tax. Let’s say next year, you should also be an advanced rate taxpayer, but once again, because of running it as a business, a tax efficient one, you chose to pay zero tax to grow the business. This year however, you personally want to borrow £1.5 million, you are building you own home say…or extending the existing one in your case Richard! The lender is going to want to say, can you afford to service this whopping great debt. And you say, yes sir, here is my SA302 or whatever they call the damn thing, saying I have got income of…they give you the money, probably means the average of the last three years of being a basic rate taxpayer. So, you have got the flexibility to raise finance personally, to suit what you are trying to achieve. Ok, another advantage. If let’s say in the limited company, you decide, I’m going to take an earned income from this. Earned income is pensionable, and that opens the whole door to, self-administered self-invested pension schemes. Wonderful beast. Highly tax efficient in their own right and they have the added advantage that they can make their own investment decision which can be to buy property. Now, it has to be a commercial property, I’m afraid, they cannot buy resi, I know there is maybe some options around the edges. But let’s just stick to the core for a second. But you can buy commercial. Now, a little-known fact is that, a block of 5 flats say, under one title is considered residential, but a block of 6 flats say, under 1 title is commercial…
Richard: And that’s even if the flats are residential properties, people live in them under ASTs etc.…
Tony: As long as it’s all under 1 title, 1 title you can do what you like thereafter. The pension can now buy it. And, the money, any money its buy, borrowed from itself gets paid back into the pension scheme. So, its continually on this tax efficient wash cycle. But, you got to have earned income, to get earned income, you have to pay tax to start with. With all of these things, the devil is in the detail. You know, the…with any kind of investment decision it comes down to 2 things, 1—should I be doing this, is it what I want to do, is it going to help me achieve my goals? And secondly now do the numbers work.
Richard: Yeah, I think, you need to start with the end in mind, rather than you know...you certainly don’t start from how do I avoid tax. You start with… what are you trying to achieve in life, when are you trying to achieve it, then you look at the avenues to get there.
Tony: Correct, you know…meaning to or not, you really hit the nail on the head. And this is why so many tax schemes fail. Take the Alan Carrs of this world, actually what he was doing was perfectly legal, his advisors were gaming the system. Rather than taking advantage of the legitimate tax break, because they had a legitimate business which deserved it. Which was set up for, they were deliberately setting up businesses to take advantage of the tax break. That weren’t there in the first place. So, with all of this, you have to work within the spirit not just within the letter. So, do it because it’s good to help you grow your money, in a proper business structure which happens to be tax efficient and the government will say to you very well done.
Richard: So, just to clarify, so far, what we have got from a financing angle. Just trying to make sure I keep it on topic for our listeners in this series. From a financing point of view, we have got potential return of capital as a source of finance, if we use this hybrid structure that you have outlined.
Tony: Yeah, self-financing in that sense or choosing to take some of it as income, to prove that in that particular tax year you can afford to service the debt.
Richard: So, then we come on to the whole earned income route as well. So, you could take earned income to unproven income as you say, for fundraising purposes or something like that. But equally you can take, choose to take an earned income so you can make pension contributions, and those pension contributions can go into some form of self-administered scheme, whether it’s a SASS or a SIPP and you can therefore control how you invest that money in property. I take what you said it’s got to be commercial. By the way there’s two types of investment here, isn’t there? Isn’t there…you know, buy to hold type of assets equalling buy to sell type of assets?
Tony: Ah, look if you are into buy to sell, effectively you are running a property business, a development business and whilst the same overall, hybrid structure potentially works for getting money out. You know, it’s no different from a corner shop in that respect. If you buy a development, is…you know, quite a speciality in itself. But yeah, you could do that via the pension fund and put more money back into it as long its commercial. Not commercial property, it could be a commercial business that specialises in buying and selling what are going to be residential properties.
Richard: That’s right, that’s what I was getting at.
Tony: If you are trading in property at that point.
Richard: And of course, you constantly, if you are taking money in and out of the pension, you are just topping up your own future wealth and earnings in your pension as well, of course.
Tony: Absolutely. If you are paying yourself to the point where you are truly set up with tenants and toilets and you sell the whole damn thing and live off the pension.
Richard: There we go. And there’s a lot of flexibility now with how when you can take pensions, how you draw the money out. People are probably aware of some of that, I’m sure you can enlighten…
Tony: And you can make the Inheritance Tax free as well…
Richard: Oh, there you go again…so, yeah, and just as a quick point, a lot of people will struggle, a lot of young people struggle with the idea of pensions, because they just see it as so far off, but you know, should you be in your 20s or 30s thinking about pensions?
Tony: I was selling financial services in my 20s and I wish I had taken more of my own advice. Even £20 quid a month, you start doing the numbers, its exponential growth. Used to say, after the first 5 years, the value doubles every 5 or something, look, forget it as being called a pension, what you are doing is creating an income producing asset.
Richard: Or a wealth fund…
Tony: Yeah, the difference between a, you know, a pension and taking rental income off a property portfolio, is what? I can’t find one, it’s the same damn thing.
Richard: I thought it was a trick question and I was trying to work out what the answer was.
Tony: No, it’s not, well it was a trick question in that, there isn’t a difference. It’s just what they are called. But they do the same job, and broadly speaking, the same way, one buys equities one buys realty.
Richard: And, sticking with the theme of financing, we kind of got 2 of the big ones out there, but do you have another one…
Tony: Well, yeah, actually there is. We have covered it inadvertently. When we talked about trading companies. You can use company loans. So, if the business has got a trading profit. Let’s say you have got a trading business and its sitting with a lot of business on the balance sheet…
Richard: Just to clarify, what is a trading business, it doesn’t have to be just property does it?
Tony: No, the corner shop…
Richard: Buying and selling type of business,
Tony: Buying and selling if it’s a good property or intellectual property, the professions. You have got this trading business, doing very well for itself, building up cash on its balance sheet, it’s really possible and there is no exact formula for it. So, that trading to be deemed an investment business. So, you lose entrepreneurs relief and you lose business relief for inheritance tax. And that can be a thorny problem, there is one that a lot of businesses have got no idea about and haven’t been told about by any advisors. So, that trading business can now use that cash for investment purposes, nothing to stop it loaning it to another business. To create other assets, even income producing ones. As we are going on commercial terms clearly…
Richard: Right, yeah, commercial terms, would be what? Carry some sort of interest rates or something?
Tony: Yeah, an interest rate can be zero…
Richard: The interest rate can be zero did you say?
Tony: Yes, but you make a conscious decision to only charge the zero-interest rate. If you do it interest free, it’s not classed as commercial. Because biscuits and Jaffa Cakes time ok, the difference between the 2 is what, 1 pays VAT and one doesn’t. It’s an old argument on VAT side but it’s the same principal. You have a proper commercial agreement between 2 businesses, albeit, you say no, we are not going to charge, we are only going to charge you 0%, the peppercorn if you like. But it has to be repaid and so on and so forth, and then you can take the curse off losing your trading business status, make a turn on your money and if that money happens to be coming from property so be it.
Richard: Well, that’s obviously what our audience will probably be most interested in. I think actually, to pay a rate of interest back to the trading business is probably good business practice. Although you will end up increasing the profits which will then be subject to tax, I realise that.
Tony: So, what? You have made a profit.
Richard: Yeah, I know but people forget that. That you have actually made a profit. So, I was going to say, and just to clarify, and a lot of people are aware of directors’ loans so the distinction between a limited company loan or the advantage of an intercompany loan or a director’s loan. And when I’m talking directors loan, I’m directors loan from the company to the director…
Tony: Yeah, there are limits on that, and all sorts of horrible tax issues surrounding it. Not somewhere I’d suggest you go, in some circumstances it has to be that way, occasionally it warrants doing it that way, but not good. However, one company lending to another company, you got separate legal personalities here. You know, within the law, they can do what they want.
Richard: Yeah, this is kind of playing into my hands quite well, with this split personality idea to be honest.
Tony: Keep taking the tablets…
Richard: So, you have got...I can see how this...you used the phrase earlier, I’m not sure if you want to repeat it, about the washing machine…wash cycle…
Tony: It’s a perpetual tax efficient wash cycle.
Richard: So, you can set up some structures which, you know have a by-product of being tax efficient, let’s say, but they reflect your business operations and you can take returns of capital, you can take earned income and transfer it into pension assets, you can loan profits from one trading business into another business form investment purposes. I thought you had said that when we first spoke. I knew it would be a good idea to get you on the show again just to run through that, because a lot of that was new to me, especially this hybrid model, some of the other things, you know I’m more aware of but the hybrid model I think is very pertinent, very relevant at this point in time. I think you started with that bad news story about…incorporate at your peril, type of thing. This sounds like a legitimate alternative if I understood it correctly.
Tony: That’s because it is. And the truth of the matter is, it…it’s the only choice you have really got.
Richard: And, I think, you know, there is so much debate, I’m sure you follow the forums and the news and everything else, people going crazy with shall I incorporate, should I sell up, all those things you talked about in the beginning. And, of course, what’s in my mind, is the you know, the Treasury, the Chancellor, they are not daft and, you know, they are probably going to herd us all into the pen, we all leap into this pen and then we are targets, aren’t we?
Tony: Although, this what is why they want to do it, and this is nothing new. So, some 20 odd years ago, HMRC made a decision that it wants everybody, everyone who is self-employed and the professions in particular, all to be limited companies, for obvious reasons, because they see everything that goes on and they can tax it easily.
Richard: Yeah, because they have to be formally registered and this sort of thing and submit accounts…
Tony: Correct, all in the public domain. Ok, well, the professions, lawyers and accountants in particular, were up in arms about it, for obvious reasons, you know. And, they basically, 50-60% of the House of Commons is made up of lawyers of one size or shape. And that particular breed of turkey you don’t want for Christmas. So, they brought in what was an American model, this Limited Liability Partnership concept, and basically told HMRC to toddle off. So, whilst the government can do what it likes, its legally allowed to put its hand in your pocket as far as it can reach, you know, due to (inaudible) vs IRC1936, you are also entitled to stop them doing it within the law. So, you have this wonderful arrangement where you can have legitimate hybrid structures, which, nothing is safe at the end of the day, the government has got a big enough majority, it will trample over everybody’s rights, but for the time being at least, it works today. And we will all sit in a dark room with a cold towel wrapped around our heads trying to work out what the next way to work within the system, but more efficiently is.
Richard: Well, it sort of brings me on a little bit to...you kind of, hit us hard with some bad news, then you told us the answer, but is there some risks or downsides here? I mean, one of them surely, there is some costs involved in setting up such structures I guess?
Tony: Ok, well, downsides and risks. Downside, you are going to have run the damn thing as a business now, there is no hiding from the fact. But, there is business advisors and you need to do this properly, which is actually what the government wants you to do, to be honest with you. Accidents and landlords are a pain, they suck up housing stock, they are inflate prices, and most aren’t exactly making any money out of it either. You would be surprised how many landlords, are running losses.
Richard: Yeah, maybe just waiting for the Capital growth.
Tony: It is really difficult to say what it costs to set this up. Because everybody is slightly different, and you don’t know where the bodies are buried metaphorically. So, it’s hard to give numbers.
Richard: You don’t know where the bodies are buried…
Tony: People get that…
Richard: But it’s going to cost some money to get it set up basically…so that’s one of them. I think you alluded to one earlier, if there is a big enough majority then they could potentially could change the law. I don’t know if some of these things are out of reach or you know, could be subject to change later. You know, it might be, make hay while the sun shines type of thing…
Tony: But that’s the same with everything, you know, every budget, every statement something subtly changes, so you make the most of what you have got when you have got it. And English law is beautiful in this respect, if it was legal when you done it, they can’t backtrack it. They can stop it from a given point onwards, but if it was legal during its currency, that was it, it was legal. End of. You used to have to do something different, now…
Richard: Yeah, I mean the clause 24 thing, was all, you know, I’m not saying it was a legality thing but people were following the rules and regulations at the time and it does seem to be a sort of retrospective hit even though…
Tony: No, no, no, it is retrospective hit, it’s from a point forward…
Richard: Yeah, ok…
Tony: It’s from the 6th April 2017…
Richard: But it applies to all existing loans and structures in place, so that’s what I mean…
Tony: Yeah, ok, yeah. A lot of these times you just have to suck it up, it’s the cost of doing business. It’s another form of business regulation if you like dressed up as tax. It’s just the way it is, man.
Richard: So, we…this whole idea of incorporation and a hybrid model, it falls out of whether you have some existing properties that you could set up this…
Tony: No, no, no, just starting up.
Richard: Yeah, I was going to say, what about other categories of people?
Tony: Ok, if you are a start-up, the minute you look like you are going to get above basic rate tax or above the inheritance tax thresholds, the hybrid solution is perfect for you. You may not necessarily see a return on investment, in the first year, but you are doing it for a bigger purpose.
Richard: Because it is a snowball, isn’t it? I think you start the snowball off, it rolls down the hill, it gathers momentum, and gathers, in 20 years’ time that’s a big old snowball.
Tony: I had 2 clients yesterday, one only started 8 years ago, he had a lfie changing experience, went from living in a council flat, to being worth well over £10000000, another chap, he has been doing it 25 years, almost a lifetime work and its worth a couple. Both are very happy with what they have got, its relative. But yeah, there is a snowball there, if you start, you do the right thing, do it consistently enough. It’s a bit like the pensions we talked about earlier. £20 a month, over 50 years is a lot of money. A property a year over 50 years, that’s a lot of property.
Richard: Yeah, so, I think my takeaway from this, if you have an existing portfolio, of whatever size, it can grow, following the snowball idea, or if you have got sort of an idea to, work in property over a period of time, it can develop into a snowball. And if you have got a sort of professional attitude towards it, it’s a good idea to seek out advice from the outset, and get thing set up as you wish. Because it’s a lot harder to back into it later on, that could be, I don’t want to get into it but it could be more harder, could be more costs. How did you say it, the bodies thing?
Tony: It depends on the bodies and where they are buried.
Richard: Yeah, exactly, so I better go and check where I have buried mine now. Anyway, I kind of just wanted to get that out there. What do people need to do to get themselves ready for this type of thing? What are the next steps really?
Tony: Oh, look I think there are two things they have to do. 1—and this is a good time of the year to do it, sit down and work out why the hell am I doing it? What am I trying to achieve? Because being a landlord is a tough gig, so why am I putting myself through it, and put some numbers on it. If you were going to retire tomorrow, unless you fell off your perch tomorrow, how much in today’s terms would you want to have? That’s the real big thing…
Richard: I call it the Someday Goal, that’s just a phrase I use, what is your Someday Goal?
Tony: Well, you got to change it from someday to a date in your diary actually…
Richard: Well, yeah, the someday goal is just a summary, always has a date, always has a number…
Tony: Absolutely, now whether you ever do what plan to do is another matter, but at least you have got the option. Second, and this is the hard part really, you got to sit down and say look, I don’t know what I don’t know. Let me talk to somebody who knows what I don’t know. And be prepared to pay for it. And they can always call us…
Richard: Yeah, well, you know, that probably starts to take us, unless there is other things you wanted to cover off and I’ve not asked you about. It’s kind of what are the next steps, should people contact you Tony?
Tony: Ok, they can contact me by email, is the best please, and if they send an email to info@lesstaxforlandlords.co.uk marked for my attention, saying they heard me on The Property Voice, will get back to them.
Richard: Yeah, and I know that’s something you done previously and you had a reasonable response so there may be some people contacting you again, who knows?
Tony: I hope so…
Richard: Yeah and maybe some for the first time. So, Tony Gimple and its info@lesstaxforlandlords.co.uk is that right?
Tony: You got it in one…
Richard: Ok, good, so, maybe you should quote The Property Voice so he knows where you came from, and I’ll say he, like he isn’t on the call. That would be great. I think that’s probably the best starting point, and to your point where you just said, about the hard part, I myself have faced this and sometimes it’s hard to accept that maybe you don’t know everything and it is definitely true and it’s also true that sometimes, free advice can be the most costly. It’s wise sometimes bite the bullet, pay a few quid, get someone in who knows what they are talking about, and take their advice. So, it’s not a particular big up for you, although, you know, let it be as well, I just think people should get proper advice, and I see so many questions go around the forums about, you know, should I set up this way, should I set up that way, and maybe it’s just a quick meeting with someone who knows what they are talking about, it could save them a lot of time and trouble and they can get it set up correctly.
Tony: Correct, I mean, that’s the answer, just stay as you are, it’s not worth doing anything. That in itself is worth something to them.
Richard: Yeah, exactly, so you can make as you said, a conscious or a positive decision to do nothing. At least you are well informed. Well fantastic, I’ve enjoyed it again, Tony, as ever, and I have got a film reference as well as a whole load of structural or financial input, it’s a twist on the whole financing angle. I don’t know if you have, I’m sure you haven’t been tuning in, I know you have been very busy, but we have gone from basic, you know, level financing to some quite complex, creative alternative types of structures. And, so, this is one that people wouldn’t have naturally thought, I’m talking about helping to either save or raise money through the way that you structure your affairs, and you have outlined it pretty well. So, thanks for doing that, it’s good to have you on the show. And I know you are planning to do a bit of a write up aren’t you? On the whole hybrid thing, that we can share on our blog as well.
Tony: Absolutely, yeah. No clause, it’s yours to use and enjoy.
Richard: Fantastic, I will look forward to sharing that with people who prefer the written format as well as the audio format. Tony, I know you are busy, thanks a lot for your time, have a great end to the year, enjoy that holiday that’s coming up. And look forward to connecting with you further, I’m sure you will hear a bit from our listeners as well.
Tony: Wonderful. Richard, thank you very much, see you in the New Year.
Richard: You are welcome, take care, cheers.
Tony: Bye
Richard: Bye.
Property Chatter
Interview with Subject Matter Expert: Tony Gimple.
Resources mentioned:
Tony Gimple’s contacts: Less Tax for Landlords website & info@lesstaxforlandlords.co.uk
Wasn’t that interesting? I thought so, as Tony has a way of illustrating his points in a very entertaining way.
Let’s not forget that the main idea of this series is to discuss financing in property, so aside from potentially saving tax…I noted the following key areas that related to the finance in property theme from what Tony outlined:
- A return of capital tax-free instead of taxed income once the hybrid structure he mentioned is set up.
- The use of leverage of HMRC tax credits and external borrowing to add to a pension fund created from earned income…or in other words matching our own money through pension structures with other people’s money to use for investment or development purposes.
- The use of intercompany loans to divert profits from a trading business into an investment company, simply by setting up separate trading and investment structures.
Of course, these structures may not always work for everyone in every situation, which is why it is a good idea to seek professional advice before ploughing ahead.
One extra point I forgot to ask Tony on air, which I followed up with afterwards was the Clause 24 mortgage interest relief issue. Tony mentioned to me that his hybrid structure can take care of that as well, however, please speak to him directly to understand how that fits into the overall landscape.
OK, so that’s what I wanted to cover off today. In fact, that will be all I plan to cover off for the rest of this year as well, as I am going to take a 2-week break from recording over Christmas and New Year and spend some quality time with my family. The next podcast will be released on Wednesday 11th January, where I have a couple more episodes to share in this current series, so do make sure you come back for those.
Don’t forget our 360° Property Business Workshop in Q1 of 2017, probably in the north of England, just drop me an email podcast@thepropertyvoice.net with 360 Workshop in the title to get advance notice of that.
As always, email me personally if you want to talk about anything from today’s show or more generally in property investing, the show notes will be over at the website www.thepropertyvoice.net
Right now, I would just like to wish each and every one of you a very pleasant Christmas and a happy New Year. I hope you get to spend some quality time with the people you most love and care for and perhaps the odd look at the goals list in between!
I hope you can join me again on 11th January, so until then, thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.