Complete LTC picture
(updated on Monday, August 03rd 2020)
We are about to rent out our family home and have been advised to set up an LTC. I have spoken to my lawyer, accountant, and mortgage broker, and while they gave me advice pertaining to their area of expertise no one could give me a complete picture. So I have these questions:
1. Is it advisable to set up the LTC before we let our property out or can we do it after?
2. When we sign a tenancy agreement would it need to be under the name of our LTC or as private individuals?
3. If we set up the LTC after we let out the property, would it need a new tenancy agreement?
4. Would the LTC need a separate bank account of its own and would all income and expenses going in and out need to be from there?
5. Does having an LTC limit my borrowing capacity for future purchases?
6. From a future borrowing capacity does it matter how we structure the LTC ownership? (I am the principal income earner and have been advised to have 10% of the LTC ownership, whereas my wife to keep 90% while she is the secondary income earner?)
Our Experts Answer:
Here are some answers to your questions:
1. An LTC restructure will only be necessary if you need to refinance equity out of what was your old family home. It should be done when you begin renting the property out and would normally be coordinated to align with your purchase of a new home. Remember any losses in the company are now ring fenced and the restructure will reset bright line for the property.
2.Once the company owns the property the tenancy agreement will be with the company.
3.Yes, once the company is set up you would need a new tenancy agreement.
4.Yes, the company needs its own bank account and should account for all its relevant transactions through it.
5.No, having the company won’t limit your borrowing capacity for future purchases.
6.It won't affect your borrowing capacity but it sounds a lot like you are assuming you can offset rental losses against your income. You can't do that anymore: you have this government to thank for ring fencing them.
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