The best of both worlds  

Recently we have had some cases whereby doing a mortgage in a limited company was either not possible given time restrictions, or slightly more on the expensive side.  

Buying in a limited company is more cumbersome than buying in a personal name, as it adds another layer of due diligence to the process.  This therefore becomes prohibitive when there is a time restriction to the deal, for example in the case of an auction purchase.  

The rates for limited companies also tend to be more expensive, I’m unsure as to the reason why, as the debt is generally always personally guaranteed by the borrower regardless of the vehicle used for the purchase.  

A cheaper option is extracting equity on a residential basis.  Contrary to popular opinion regardless of from which one of the above three places the debt is taken, one is personally liable for it. 

Despite this point some, regardless of the extra cost, find some form of emotional comfort taking debt from a BTL property rather than their residential.  

The ideal situation would be to take the funds at the cheapest rate and have the tax saving benefit of owning the asset in a corporate wrapper.   

There is actually a way of getting the best from both worlds, through an instrument known as a trust.  Very simply put, a trust is when one party holds an asset on behalf and for the benefit of another party.  This law stems from the 12th century.  Disputes over land and estates arose when the crusaders came back from fighting the holy wars and tried to claim their estates back from those who were supposed to look after them.  Hence trust law was born. 

Here one is holding it on behalf of a limited company.  

It is of course advisable to get proper advice, as each situation is unique, and doing this may impact another aspect of your estate.  Currently, we are in the process of setting several deals up in this manner, for each one we will be taking the appropriate advice.  

Trust is something which is used a lot in life assurance.  When the policy is placed in trust, it has two benefits.  One is the sum assured is paid out immediately on death, without the need to go through probate.  The other is it sits outside of one’s estate.  Given this, it is surprising how many are not set up in this manner and therefore expose themselves to unnecessary hurdles.  There are many nuances to this subject, and advice not only needs to be taken on the set up but also the structure ideally needs to be regularly reviewed.  

Suresh Vagjiani
Suresh Vagjiani
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