Why Holding Company Structures are Dangerous - Property Finance Tip with Kevin Wright

Using holding company structures for to finance property purchases? This can often be a go-to recommendation from accountants (in some cases), but is there more to this process that you should be aware of, and what lending or tax implications does this have? Kevin Wright answers this in this week's Property Finance Tip video.

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[rocketman]

So what’s the ideal structure to buy properties in a company Kevin?

[johnstewart]

Bizarre advice. Very vague. Your telling people not to listen to accountants but then when somebody asks you a question you direct them to a accountant saying you don’t know 😂

[DuriKucera]

Hi Kevin, I really enjoyed the video, you are providing valuable content for the community!
Can a holding company get a BTL mortgage if it invests the money on the stock market as well? It's not a proper SPV

[AlexG-zijr]

Thanks for your video. Would like to ask some questions. I would like to form a Wyoming corporation for anonymity purpose. I also would like to build credit for both and use tax strategies with S Corp and pay myself a salary. Should I form an LLC in Wyoming and file a foreign S corp in California? Does it have to have exact business name? Should I buy property, car and other assets with Wyoming or California company for asset protection?

[Solihul]

Question: if you have a portfolio of personal name BTL that maximizes the basic tax threshold between a married couple, is there much point creating a second portfolio via a ltd company if your intention is quality of personal spendature rather than buying more property for the sake of it?

For example, if i wanted to get a better main residence, can i use both my personal income and ltd income to purchase without being hit with a large dividends tax (which would work out more expensive than higher tax personal anyway). Or is it literally just for on paper wealth

[UK-Property-Tax-Accountants]

I agree with Kevin that he would not be able to provide tax advice. We always say that we can make you tax-efficient but you may not be able to get finance. Having a holding company creates a greater risk for banks and reluctant to get involved. Great video @Kevin

[peters]

Can you remortgage a commercial property that is owned outright and in a holding company?

[lostcomposer]

When you use the term holding company are you referring to an SPV, which is normally set up where a JV has been formed. If you are then I’m wondering what the best approach is if the plan is to buy with a JV partner and then remortgage having owned the property for a little while? Many thanks Kevin.

[FreddieVernon]

Hi Kevin, great vid. What structure would you recommend from a mortgage perspective? I will use a company to trade property, and want to invest (also through a company) some of the profit into long term BTL investments. I imagine you've seen people in a similar position to me before. Thanks

[adriatic]

Security is one of the biggest reasons for building a holding structure, not 'tax evasion' and it is not even mentioned here. And what happens if the ordinary LLC gets loan from the lending facility, then a holding company buys let's say 80% shares in that LLC company.

[edersondesouza]

If you don’t know what you’re talking about just keep to yourself don’t make people confuse

[reneschaefer]

In don't agree. If you are a big portfolio landlord you are most likely to get mortgages from commercial lenders and they are not bothered about a holding structure. In reality the holding structure actually protects the prop-co who owns the properties and pays the mortgages. The op-co takes all the risk and is ring-fenced. In case the op-co makes decent profit - it can be transferred over to the prop-co tax free and would usually be used to purchase further properties but can also help to pay the mortgage. In case the op-co is in trouble it could go bust without effecting the prop-co with its assets. Also, by tax free transferring the profits to the prop-co you can massively benefit from the compound effect and you incorporated net worth can grow exponentially rather than being taxed with the highest tax bracket when it need to be pulled out of the op-co without a holding and put into the prop-co das a new director's loan. The only case a holding would effect you negatively would be when you have a small BTL portfolio and have non commercial lenders. If a holiday guest gets seriously injured by falling down a staircase which is not properly maintained and the insurance is not covering the case - the mortgage lender can be happy that the management is separated and only linked with a holding. To have a holding abroad, however is not popular even amongst commercial lenders. So if you have 18 bed HMOs and apartment hotels like me - a holding would not negatively effect you but if you have 3 terraced house it would make your mortgage more expensive but who needs a holding with 3 terraced houses?

[knyansa]

Kevin, i take it you are from the U.K.. What's your take on Watermine Corporation Ltd?

[speakvanholdingetc]

Holding companies are never for your own business, unless, you are running a scam. Holding companies are the reason why Sears, Red lobster and other companies failed. A Holding Company is nothing but an investment company that needs too, and will make a lot of monies like any predatory business. Holding companies in a nut shell, is a finesse .

[guayabeoenalta]

las oportunidades son buenas señor wright gracias

[keirdoubas]

This video needed to be alot longer and go into more detail. 4 minutes doesnt cut it for this at all.

[admin-nottsrelocate]

So to clarify if the holding company that buys the property is the main company (and not a subsidiary) and owns one subsidiary would this apply?

[vp]

Hi Kevin,
I do not agree to your generalisation that Holding companies are dangerous. That is a complete lie.
Holding companies immensely help investors who want to build long term wealth even if starting with a small portfolio. The real benefit is they can shield the assets from the tax man tax efficiently (not avoidance) within the given rules. This in the alternative approach of just using ltd companies is comparatively only favouring the tax man.

For example: A family can gradually build a portfolio of buy to let properties using a Holding company structure with father/mom being the voting share holders and kids being other class shareholders with no voting rights etc. In situations where the father/mom being higher rate tax payers, there is no better way of them maximising benefits and wealth using the property portfolio. As the property appreciates as well as pays a yearly return tax efficiently. The same without the holding company has to be paid back in corporation tax, dividend tax etc..

Anyone seriously considering to build a portfolio of properties please do your research. Yes the mortgages may not be from the high street lenders but there are still options available. Since the taxation on landlords have increased there is more market appetite to see differently structured property portfolios using holding/limited companies. I do have a mortgage consultant confirming there are lenders to help so it is not as he is stating in this video. Yes the interest rate might be higher which is a cost benefit analysis and long term benefits to be taken into account.

[mikerobpen]

Hi Kevin, great and informative videos, keep them coming. I've got a question, which I'd rather ask direct. Do you have a contact email? Cheers, Mike

[leeboss]

Banks don’t like it, ok so where’s the downside 😂