Ryan: Hi guys!
Welcome to Compare Return, where it is our job to connect Expats with Experts.
Today’s episode we are going to bring you the one simple trick, which could help improve the returns on your UK property investment by up to 60 percent. Now I have been involved in UK property for several years now. I think it can make a really good investment.
Bricks and mortar should form part of you know any good investment portfolio in my opinion. However, there have been some changes in the UK over the last couple years regarding; how UK investment properties are handled with income tax. So, this is a changing landscape and changing landscape sometimes mean you should change how you approach investments. Which brings us to today’s topic.
So, today we have a special guest called “Chris Frame” he has been in the property game for an exceptionally long time now and he has come up with a solution, which is truly mind-blowing to bring a 2021 tech-based solution to an industry, which is hundreds and hundreds of years old is really something special. So, without further ado, let us get stuck into today’s episode.
Do not forget to like and subscribe to the channel if you enjoyed today’s video and once again this video is not to be taken as financial or tax or legal advice. If you need help with any of those subjects, please reach out to an expert.
Okay guys let us get started. Okay thanks for joining us today Chris nice to have you along have you had a good day today so far?
Chris: Yeah, exceptionally good, exceptionally good I have to say Singapore it is it has always been based in Singapore it is it is always consistent in terms of this time of day. Good, good weather so this time of year, which is nice so yeah good a good day busy, which is good.
Ryan: Yeah lovely! well thanks for joining us I guess first thing off the bat is tell us about what it is what is a UK property company?
Chris: Yeah, so thank you, thanks
Ryan: Obviously, thanks for thanks for hosting the session. So, in terms of get ground on who we are and what we do; we specialize in setting up and then running UK registered limited companies for the sole purpose of buying investment property in the UK. So very simply our services benefit the investor.
Anyone looking to invest in the UK regardless really of where they are based. Whether they are a UK resident or non-UK resident, can potentially benefit quite significantly by using a limited company structure when investing in in UK property and essentially what we have done is create a very quick and easy to access solution a comprehensive solution and one that is very cost effective.
So, I guess we have not necessarily changed fundamentally the benefits of a limited company structure necessarily, but we have made those benefits far more accessible to all investors by essentially removing two of the prohibitive factors that used to exist, which is namely one of cost.
It used to be awfully expensive to set up a limited company it also used to be expensive to then run that limited company each and every year and then the second point is really the time-consuming nature that used to be involved.
Again, on set up, it could take weeks if not months to set up an operational business and then again each and every year having to run that and undertake all the financial administration was quite a time-consuming task.
So those two elements really used to put a lot of investors off. the service or the solution we have created, it can all be done online. It can all be accessed remotely from a customer’s perspective. It takes about 20 30 20 to 30 minutes to complete the process and thereafter we essentially do everything else on both the creation but then also on the running of that limited company and undertaking all the financial administration on behalf of.
Ryan: I think what one of the problems a lot of people used to run into traditionally was just finding the right person to be able to set it up. You know a lot of people who set up UK SPVs or property companies where you know offices in the UK, which had telephone numbers and people in suits sat down at desks.
It was simply hard to get in touch with someone to do it all for you really but nowadays with get ground and all being online. It seems like you guys are the 2021 solution for this.
Chris: I hope so. I think, you know one of the one of the things that really appealed to me in terms of joining get ground I mean my background is entirely property related so I have seen a lot of the challenges around limited company structures over the last sort of 20 years or so and in my mind, it just looked like a really good use of technology.
I think in the last sort of however many years, there has been a little bit of not gimmicky technology but almost technology that has not always improved the area within any marketplace. I do think the property market has always been significantly behind when it comes to technology and I do think this is an exceptionally good use of technology to really help speed up a process that used to take a long period of time and by then using technology it can be done significantly at lower cost because for our service or our solution.
It just allows for a lot of automation and that is really where we can help drive down the running costs of the limited company each year.
Ryan: Fantastic! So, basically digitalized and automated what was an old business model.
Chris: Yeah, exactly and like I said, I mean I think the property industry has been a long way behind in technology. It has still got a long way to go as well in my mind, but it is a start and I think certainly, we went live about 15 months ago in terms of once they went live in terms of servicing customers. and the take-up has been significant you know.
We have got over a thousand limited companies on the platform now and I think that ease of service and the ease of solution has been extremely attractive, and I think also particularly for those customers or investors based overseas.
As much as the benefits to a limited company benefit both a UK resident and a non-UK resident but particularly in the last 12 months with covid and everything else that is going on, the non-UK resident investor has really benefited from us services because it has all been allowed to be created and set up and run properly all done remotely without the need for travel.
Ryan: And you guys can deal with customers and clients from anywhere in the world?
Chris: Yeah, essentially yeah I mean from our side of things we have a very simple sort of AML (anti-money laundering) process to go through very similar to both developers and agents alike really we need a proof of ID, so most commonly a passport, we need a proof of address, which is any utility bill or formal letter dated within the last three months and then also we take a selfie or at least the customer will take a selfie in modern day technology and that selfie essentially is then cross checked with the ID that was uploaded onto the platform as a verification.
So simple solutions to providing from an AML aspect can be provided really our services benefit pretty much anyone who is buying in the UK.
Ryan: So, it is pretty much about the same process and about as easy as opening something like a TransferWise account or any of your online digital bank apps nowadays.
Chris: exactly that I mean it is remarkably like that I mean TransferWise is a company that we very much admire ourselves and sort of looking at the ease of something that they have done, and we follow quite a lot of their processes and talk to them a lot.
Particularly I am sure we will come on to this but one of our one of the parts of our setup services is the opening of a UK financial bank account for the limited company in question. so, we open that it can all be done sort of very quickly as well but looking at sort of TransferWise and really talking to them a lot about that that was you know extremely helpful indeed.
Ryan: And to have you know the UK limited company in your name at the end of this process is incredibly powerful you know it is something which did not exist five years ago at all.
Chris: Yeah, it is exactly that and I think it is certainly the limited company route. It is almost the way the industry’s going a little bit I think it is for several reasons as it benefits to the investor but there are benefits to the UK government. And the UK government are an investor in to get ground.
So, they fundamentally like what we do but there is a want in the in the UK to professionalize and regulate the vitality industries far more than it is in the current scenario. there is a want to create greater levels of trust and transparency.
And in their view, the use of a limited company structure helps with that. It is not the only thing they can change but it is a certain step that they believe helps just provide that greater levels of trust that greater levels of regulation in it. So yeah, an immensely powerful one and I think becoming more and more commonly used.
I mean there was a research report done quite recently in the last couple of weeks by Hamptons and in that article, they produced it sort of stated that over 41,000 limited companies were set up in 2020, simply for the purpose of buying investment property in the UK that was a 25 23 25% increase on the year before.
So, it is very much the way that investors are going forward the benefits that a limited company offers but also it is almost being actively encouraged as well right now to help improve the transparency of the industry.
Ryan: Fantastic! I guess next question would be why would you use one? So, guess tell us tell us a bit more about that process you know about what you do and what you will do for clients?
Chris: Yeah so, in terms if I just start on what we would do so I mentioned earlier we have sort of two parts to our business the first element is the setup process. So, for that we would open and create a brand-new UK limited company.
We register that company with companies’ house, which is the UK governing regulatory body. We will structure that company as per the wishes of the shareholder or shareholders. We will produce and verify all of the legal documentation relating to that limited company structure and also and this is also important that allows that company to undertake the activity in question, which is the obviously the buying and selling of UK property and we also open that UK bank account, which I’ve mentioned previously as well so that all performs part of our setup services and then once the company is set up and operational, we then take on all of the financial administration of that limited company.
So, we do all the accounting, all the tax filing, tax auditing, bookkeeping services, company tax returns, we undertake the role of the registered office address and we also undertake the role of the company secretary. And the reason for that is just to make sure that we can then administer but also document all the running of the company properly correctly and according to the due diligence that is required, but just to just be noticeably clear we have no ownership rights of the limited company that would be owned in its entirety by the shareholder or shareholders in question.
So, that’s sort of what we would then do for that company with that customers we do the setup and the ongoing, running of that of that limited company structure.
Ryan: Yeah, why would you use it and so yeah why would you use one and I guess because you can just go out and buy a house yourself. You do not need to have a company and not only why but also so who would be the main people that would benefit from this structure and you know, who might not benefit who is better off just not doing it at all?
Chris: Yeah, it is a great question almost obviously when we get asked all the time, very simply is or so said first today our services are only applicable to the investor.
So, someone who is looking for buy to let investment property get ground can certainly help them. If anyone is looking to buy for their own use and to buy a family home, then realistically get ground is not for them and from a personal perspective I would question whether anyone should be using a limited company if they were buying for their own use.
Ryan: Okay, so if you are going to live in the house it is not for you.
Chris: That would be my opinion. There is a lot of additional costs that come from setting up with that structure and more often not really any significant benefits.
So, I just think you are applying for your own use so I would just buy your own name. but the principles really of why a limited company work some of the benefits that work around property and using a corporate structure for investment property, comes really from the same principles as to why limited companies were invented in the first place, which essentially was to help businesses run more efficiently.
And if you have a buy-to-let or an investment property at its most simple level that is an exceedingly small business. And so, the same principles as to why limited company structures were invented in the first place almost exist when using a limited company to buy investment property.
The fact that it is generating an income triggers a lot of benefits that can then happen, in terms of obviously the why using a limited company, I mean the primary one that gets most amount of attention is greater tax efficiencies.
Ryan: Yeah so, I think that is what a lot of people are going to be looking at because if you. If you are buying an investment property, the main goal is to have that return you an income. And the more income it can return you, the better. so, I guess what is the tax savings and not only what are the potential tax savings? where do those tax savings come from? keeping in mind too that neither of us are tax agents so, this is not to be tax advice it is literally just us giving examples from what the potential saving by is using this going down this route.
Chris: Yeah, absolutely and I think so the financial benefits typically exist during the ownership period and the on exit. So, that that’s really where the greater tax efficiencies exist. On entry just to be truly clear things like stamp duty is an obvious payment that is required to be made on any transaction.
On stamp duty, if you are buying in your own name or that of a limited company structure, stamp duty remains the same. So, there is no financial disadvantage or advantage to buying your own name or a limited company.
Ryan: Got yeah!
Chris: The benefits of a limited company really sort of start during the ownership period and there are two key benefits that help create a slightly more positive cash flow; number one is that using a limited company structure you can still offset the mortgage interest against the income that property is being generated or that that property is generating.
There was a recent change about four or five years ago where the UK government now if you own an investment property in your own name, you cannot offset the mortgage interest against that income. So essentially, your UK income tax liability is significantly higher because obviously the mortgage tends to be the highest associated cost of that particular property and of that particular asset and that investment.
So, having the ability to offset that mortgage interest against the income, immediately reduces the perceived profits of that limited company.
Ryan: Okay, okay great! So, say for example if you had a hundred thousand dollars of interest payments a year on a mortgage and a hundred thousand dollars of income from rent so you got two buckets of hundred thousand dollars.
If it were not in the company, you would have to pay the interest on payments on the mortgage and you would get taxed on the income from the rent. Whereas once it is put inside an SPV, the mortgage interest rates come off as an income deduction. Is that correct?
Chris: Correct! yeah just to be clear you can only deduct the mortgage interest. So, if an investor did have a principal and interest mortgage or sometimes what is called a capital repayment mortgage, you cannot then offer you cannot offset the capital but in best proportion absolutely using a limited company you can still offset that against the income.
It is a real key benefit to investors and again just helps mitigate income tax liability. That is the reality of it. And then, really from sort of leading on to that that the profits that that limited company did not realize and create at the end of each month or each year where a limited company sort of further then endorses that point also running it very efficiently is that it is then extremely easy to withdraw income from that limited company and to do so very efficiently.
Now this will slightly depend on where a customer is based in terms of where, how, which mechanism they would use but essentially there are three options when it comes to withdrawing money from a limited company. Number one is by dividend income. If you are a non-UK resident so regardless of your nationality regardless of your residency status but if you are a non-UK resident there is zero percent income tax in the UK on dividend income.
So, you know most of our non-UK residents if they are looking to extrapolate money out of that limited company would do so by way of dividend, simply no income tax liability so that is a that is a real that is a real positive.
Chris: If you are a UK resident, you have a 2000 pounds per year dividend income tax-free allowance. So, you could withdraw up to the first 2000 without incurring any tax.
If you wanted to take out any more than that, then you would be taxed. in the usual manner as you would be as per your tax bracket in the UK. so there is another option that is available
Ryan: So, simply this is good exceptionally good for the expats then.
Chris: Would it is for the experts. The same benefit can be realized if you are a UK resident as well and the reason for that is that you can also withdraw money from a limited company by way of an owner loan repayment.
I should add this is available for both a UK resident and a non-UK resident, but most non-UK residents would tend to go down the dividend route.
Chris: And the way the owner loan repayment mechanism works is that if I buy a property for 200,000 pounds just for argument’s sake and I put down a deposit of a hundred thousand pounds on a mortgage for a hundred thousand pounds.
That hundred thousand pounds that I have put down as a deposit or my own down payment in the eyes of the UK government is seen as a loan from me as an individual to the limited company. And then from the profits that that limited company creates, I can then actually extract up to that amount.
So, in that scenario a hundred thousand pounds, it is incurring any income tax. And the rate is not viewed as an income. It is viewed as the repayment of a debt that I owned.
Ryan: Okay great I guess that leaves the big one which is CGT or on exit what happens what happens when it is time to sell the property?
Chris: Yeah exactly! So, they are the kind of the two primary benefits during the ownership period. And then on exit, using a limited company structure you are you are enabling yourself to have lower exit costs, is probably the easiest way to say it.
If you own a property in your own personal name and that property goes up in value, you will be liable for capital gains tax. And again, this is now regardless of whether you are a UK resident or non-UK resident. In your own personal name, that capital gains tax is either 18% or 28%, subject to your entire UK income.
So, it is not actually necessarily linked to the gain of the asset but to your whole UK income, all right 18% or 28%. If you buy a property using a limited company structure, there are two options that are available to you when you come to sell. Number one is the sale of the shares of the company.
So, instead of selling the property, you sell the company essentially. Now obviously, you do end up selling the property because the company owns that property.
Chris: But the truck the sale of shares number one; it creates a lower capital gains tax. So, there is capital gains tax due on the sales. That capital gains tax is now ten or twenty percent if you sell the shares of the company. So
Ryan: Is that 10 or 20 on the same scale as the 18 or 28 percent?
Chris: Exactly! So, there is an eight percent saving on capital gains.
Chris: So that is a real positive. There is a second advantage as well, when you sell the shares of the limited company and that is that the incoming buyer does not need to pay stamp duty, if they are purchasing the shares of the company.
Chris: There is a real significant uplift there for the seller because what we have commonly seen happen is it just allows for further negotiation and there is the option there to increase your price slightly.
You create essentially a win-win scenario, where you as the seller are selling the property for a higher amount than you perhaps would have done ordinarily. And equally the incoming buyer is saving money because they are not paying stamp duty.
So, you create this sort of win-win situation but importantly for the investor it increases the returns and the profits of this investment which is which is obviously a real benefit. So
Ryan: Great! So, for example if you had the house on the street. You know there is three houses, and you are the one in the middle who has got the UK property company structure and your two neighbours don’t, you have got the opportunity to either make eight percent minimum more return on the property for the same price?
Or you can either discount the property and make your property seem more attractive for the sale?
Chris: Exactly! You would benefit from the lower capital gains tax absolutely and if they were to buy the shares of the company, then there is allow the ability to further negotiate and increase your sale price. So, that is a positive powerful selling tool.
Yeah, I think it is powerful and I think what we will end up saying really is that if the incoming buyer is an investor, then they will buy the shares of the company essentially because they will still get the benefits that a limited company structure offer and, they will save money on entry by not paying stamp duty. If someone were buying for their own use, that would likely create the other option, that is available on exit.
That is very simply to sell the property out of the limited company structure itself. And in that scenario, there is zero percent capital gains tax applicable, and you pay corporation tax, which is a flat rate 19 percent.
Ryan: Yeah! So, 19 yeah!
Chris: And then, the rest of the funds would be distributed in via the mechanisms we have just talked about. So, dividend income owner loan repayments etc so done very cost effectively indeed.
Ryan: Okay fantastic!
Chris: So, that is really where I guess the financial benefits exist. We do have an audited tax example, which assumes a couple of sets of circumstances. Although, very fair ones so, it assumes a property price of 500,000 pounds. It assumes a 70% mortgage.
It assumes that property will generate a rental income of 20,000 pounds per annum and it assumes that, that property is held for five years during which the price goes up by three percent per year.
And then, there is a sale at the end of the five-year period and in that audited tax example we’ve got depending on where you based as a resident so for non-UK residents using a limited company structure can increase post-tax profits by sort of 52 to 66% um and if you’re a UK resident, it would actually be from 23 percent to 66 percent there’s a slightly lower threshold but still a significant increase in your returns on that investment.
Ryan: Wow! So, I guess the headline figure here is if you were saying a non-resident or an expat with a property and you sold it and passed on to another investment, there is a potential for a 66 percent increase on your return on investment, is that correct?
Chris: Well, it is not a training a return on your investment but a significant increase higher or an increase on the returns that you would when compared to owning in in your own personal essentially.
So, and again incredibly happy to share the audited tax example with anyone who would like to see that and indeed obviously further information, so
Ryan: So how much does all this cost you to do all this you know it sounds like it is going to be if it’s saving you know potentially the top tier you know that much on a property you know that’s a massive saving on when you’re talking sums of you know up to half a million pounds for a decent property, surely, it’s got to be fairly expensive?
Chris: No, so one of the things we have done, I should have mentioned at the very beginning we have created this sort of solution that is very quick and easy to access so it can be done online. Because of using technology, we have created a very cost-effective solution. so, we have a very transparent fee structure.
We have a one-time setup fee per limited company which is 500 pounds plus VAT. So, that is 600 pounds in total and that covers all the setup services that I mentioned. So, the opening and creation of the company; the registration of that company; the structuring of the company; all the legal documentation and of course the opening of the UK bank account and we will also of course work with any other party that is involved in the purchase itself.
So, solicitors, mortgage brokers, developers, and agents alike. And then thereafter we have an ongoing running cost, which is 20 pounds per month
So, you can run the limited company structure for 240 pounds per year. And that covers all the financial administration that we’ve sort of touched upon against.
So, all the accountancy, tax filing, auditing, bookkeeping service, the company tax returns, of course us undertaking the role of the company secretary and us acting as the registered office address as well.
Ryan: Wow! So, it is increased protection for the for the investor. It is increased returned or increased the amount of profit you could generate over a long period of time. It has all done online easy and automated, and it is cost effective as well and it gives you a big benefit to your next-door neighbors, when it comes time to sell the property.
Chris: Yeah, absolutely and it is exactly that and obviously we have touched a lot on the financial benefits that a limited company structure offer and you just sort of touched on another one of the benefits of a limited company, which is always a lot harder to monetize but they do reduce an individual’s personal liability.
They do offer great protection. they are exceptionally good mechanisms if you are buying with multiple persons. They are incredibly good for inheritance or estate planning purposes etc. So, there is a lot of other benefits to a limited company that are perhaps a lot harder to sort of put a monitor.
Ryan: Quantify yeah!
Chris: But equally a lot of customers themselves, have put a lot of value on those benefits as well and I think the reduced liability and greater protection particularly in kind of the last 12 months, that has been a positive or a very one of the benefits that a lot of value has been associated to, by the investor.
Ryan: Fantastica what is get grant’s credentials you know are you guys recognized? Is this you know is this all obviously above board and you know is it what is the structure? How do you guys operate in in the space for UK property?
Chris: Yeah, absolutely it is again it is another question, we get we get asked quite regulated. So, we are a UK company just be clear we are founded by two Singaporean brothers who live in the UK. Our head offices in the UK.
We have then got subsidiary offices one in Singapore and one in Hong Kong. As a business, we are FCA regulated, so that is the financial conduct authority and the reason for that is particularly on exit in terms of transfer and sale of shares. We must be regulated to execute any potential transfers later down the line. So, we are FCA regulated.
We are also regulated by the Information Commissioner’s office. So, that is a something we are immensely proud of. We have been endorsed by the NRLA who are the largest was the National Residential Landlord Association. It is the largest landlord association in the UK. So, that was a positive endorsement.
Then probably one of the biggest things for us in terms of sort of the credentials and the credibility of who we are is that one of our investors is the UK government.
Ryan: Yeah, that is a massive one.
Chris: You know they have very much firstly bought into what we do as a business but equally they are incredibly positive towards what we do. And the reason for that is there is a real eagerness in the UK to try and regulate to professionalize the buy to let industry.
Just to create a lot more trust and transparency in that industry. It is an industry that often has not been overly regulated in the past. So, there is a want to improve that and there is a belief that limited company structures are a part of that process.
So, that is a real positive and obviously to get their investment, there was an awful lot of due diligence and compliance and everything else
Ryan: Yeah, I can imagine that is always important. I guess the other thing too you know if sometimes, when people talk about these tax savings, the question of you know legitimacy always comes into that conversation and if this is something that it seems like the government is actively encouraging people to do then hey you cannot get more of a green line than that.
Chris: Yeah, it is an interesting one and again it is something that we get asked quite a lot is why essentially is the UK government encouraging people to go down this route when actually and the reason for it is that if someone does set up in a limited company structure then it is regulated, as we said and registered with companies’ house.
So, that, that tax is then essentially guaranteed to be received as and when it materializes. Whereas, in your own personal name, there are a lot of landlords who are trying or trying to avoid paying tax essentially. So, whilst it might be
higher they are probably not getting 100 of the tax that they are owed. Now that is being clamped down on what on particularly in the last three or four years and will continue to do so, but essentially by going down this route, it guarantees that their own income albeit a slightly reduced rate, which again it is a sort of a not necessarily a win-win but that’s
Ryan: That’s you have hit on one of the mantras of Compare Return, which is, “It’s always better to eat the carrot than to get the stick.” So, you pay some tax. Always pay tax Always but if you are if you are you know transparent about your operations and you are paying the correct amount of tax, if that correct amount of tax is also lower than you are winning all over the place.
Chris: Exactly and I think and that and it is something we talk a lot about as well your tax avoidance is illegal.
Ryan: Yeah, absolutely
Chris: But mitigating tax and doing things efficiently and effectively is obviously not managing those taxes is not. So, it is particularly important.
Ryan: Well fantastic! It sounds like you guys have ticked all the boxes ticked you have come up with a modern 2021 take on a traditional industry you can open bank accounts or companies everything digitally I will help people go through this process myself and it takes about half an hour at maximum you know, take a selfie on your it has got a QR code, you can scan.
It is a fantastic digital software solution you guys have put together for a traditional industry and the financial benefits for spending that a half an hour to get it set up is massive.
So, thank you very much for your time Chris. We are going to leave links and comments down below in the video here to get in touch with your services and get started if anyone needs to speak with you and yeah mate thank you very much for your time today.
Chris: Absolute pleasure and thank you so much for hosting.
Ryan: Too easy I am Compare Return our job is to connect expats with experts and Chris you seem like you are the expert in the space.
Chris: That is truly kind
Ryan: Thanks mate cheers! Have a good day
Chris: Thank you, you too.
Ryan: Okay everyone that was the video for today I hope you enjoyed the interview with Chris and found it interesting what would previously have taken you potentially weeks or months to set up and thousands of thousands of pounds can now be done online in under an hour, which is amazing what technology can do lately.
If that is not a game changer then I do not know what is. if you enjoyed today’s video, once again make sure you hit that like and subscribe button and we will see you next week for the next.