Case study – The bigger picture

One of the industry advisers that I’ve learned a lot from over the years sometimes talks about how important it is for everyone in the firm to see the bigger picture in terms of what we do for our clients.

In amongst the things we’ve done to help save some of our clients’ businesses over the past few years, I thought I’d tell you about a little bit of work we did and the impact it had.

N&A are a married couple. N ran his own company and A had a good job as well. They lived in a nice London flat with a big mortgage.

Although they both earned well, they spent most of their personal savings on IVF treatments trying to have their first baby. After many attempts they were successful.

Their plans were to sell their flat and buy a house before the baby arrived.

And then COVID hit. At that point trying to sell a London flat became impossible unless you were prepared to drop your price significantly. And if they did that they wouldn’t be able to afford the house they were looking at.

What they did have was a large savings pot which had built up inside N’s company. But drawing that out would incur a big tax bill.

In the meantime, the new IR35 rules kicked in and the contracting world in which N worked pretty much closed. Fortunately, N has been offered a job with the company he was previously contracting with.

They started to look at getting a buy to let mortgage on their flat with the aim of also getting a mortgage for a house. But the stamp duty rules mean that they would have a huge bill on buying their house. Whichever way they looked at it, they were stuck. But A4G (and a really good mortgage broker), came up with a plan. This is what we did:

1. We set up a new property company for them
2. Their trading company lent most of its money to the property company. We couldn’t use the original company to buy the property as buy to let lenders won’t lend to trading companies and require what they call a SPV (Special purpose vehicle)
3. The property company got a buy to let mortgage to buy their flat from them
4. Because it was their home that they were selling, there was no tax on the sale as it qualified for PPR (Principal Private Residence) Relief.
5. The company did however have to pay stamp duty on buying the flat
6. That released the money they needed for the deposit to buy the house which they have done with a very big mortgage.

Whilst that might sound relatively simple, it wasn’t. The amounts they were borrowing were considerable and they needed a really good mortgage broker to get them the deals they need.

The rent on their flat is about £200 more than the mortgage payments, agents fees and insurance. That will equate to a profit in the company on which Corporation tax will be due although I suspect it will get swallowed up in the sort of unexpected costs that crop up when you’re a landlord.

Everything had to happen in the right order and to avoid them being homeless all on the same day.

As it turned out, the solicitor messed up on the paperwork for the house purchase on the Friday of the big move and the completion of the house purchase didn’t go through until Monday! No matter, a weekend of wearing the same clothes (everything was in the removal lorries!) and sleeping at the parents was a small price to pay.

The end result is that their child who is just starting to walk has a garden to play in and plans are afoot to give her a little brother or sister.

We don’t only grow careers and businesses but apparently we now help grow families as well.