FIRE

[ClubMan]

Thanks @Flybytheseat.

 

[nest egg]

Tax on profits generated from the rental income is 25%, rising to 40% if the profit remains in the company for more than 18 months.

And you will have to extract the profit at some stage, whereupon it will be liable to up to 52% tax on the income.

The question is, what was the alternative?

If he was an employee / PAYE earner, would he have been able to buy all those properties using his after-tax income? Would he have been able to take out as many mortgages? Would he have been able to generate the same level of income as a result? Are there ways of reducing that liability by making pension contributions to his and wife wife's directors' pensions, or similar?

Better to have a smaller slice of a bigger pie...

 

[Sarenco]

It’s not necessarily better to have a smaller slice of a bigger pie.

By holding rental properties within a company, rental profits would be subject to tax at a combined rate of up to 92%.

On an after-tax basis, you would be far better off holding personally, even if the value of the property and rental profit is halved.

In other words, it’s better to have a bigger slice of a smaller pie.

 

[nest egg]

On an after-tax basis, you would be far better off holding personally, even if the value of the property and rental profit is halved.

We're getting into the hypothetical, but say it was 2 rentals using post-income tax, vs 4 of them within a company structure. Would he really have got mortgage approval, on top of his PPR, for an additional 2 especially being a contractor? There might not have been any pie!

 

[Sarenco]

I think you’re missing the point.

Two rentals held personally produce a better after-tax outcome than four rentals held within a company, assuming all four rentals produce an equivalent net income.

 

[ClubMan]

So what you're saying is basically ... two lets good, four lets bad?

 

[nest egg]

I think you’re missing the point.

I do get your point and I agree having BTLs outside a LTD company is better than inside a LTD company. At the same time BTLs inside a LTD company are better than no BTLs outside it. It's unlikely he would received approval for 2 BTL mortgages on top of his PPR mortgage if he couldn't use company cash and a company structure to borrow for them.

 

[Sarenco]

I don’t understand - why would the company structure be of any comfort to a lender?

He still has a PPR mortgage regardless.

In any event, I don’t really agree that having BTLs in a company is better than having no BTLs at all. On an after-tax basis, the reward is very, very slim for the risk involved.

He would have been far better off contributing to a pension and investing in property if that’s his thing.

 

[joe sod]

With the recent drop in share and pension portfolios Id say the prospects of building up a portfolio of stocks and retiring early has been knocked on the head again. The same thing happened after the covid crash and then the covid inflation driving up the prices of everything, people had to return to work to make ends meet, it was mainly a US phenomenon as this has only recently got traction in Ireland.

 

[ClubMan]

With the recent drop in share and pension portfolios Id say the prospects of building up a portfolio of stocks and retiring early has been knocked on the head again.

Not at all. Such volatility (even if, this time, self inflicted by a crazy US president/administration) is part and parcel of investing in equities and doesn't alter the fact that a diversified basket of shares or an appropriate index tracker still offers the best prospects of the best returns over the long term.

 

[Sarenco]

If the recent correction in global equities caused any (early) retiree to go back to work, then they had the wrong asset allocation in the first place.

Stock market corrections are common occurrences. Think of a boy walking up a hill with a yo-yo.

 

[phoenix53]

We were just talking about a stock market correction this morning and I was wondering was what has happened over the past few weeks a stock market correction or the result of some of Trumps actions and is the market correction, that so many have been speaking about for a long time, still to happen?

Now that I write it down, I don't know if that question makes sense.

 

[joe sod]

Not at all. Such volatility (even if, this time, self inflicted by a crazy US president/administration) is part and parcel of investing in equities and doesn't alter the fact that a diversified basket of shares or an appropriate index tracker still offers the best prospects of the best returns over the long term.

but many portfolios are not properly diversified with too high exposure to US stocks especially tech, even the global indices are too exposed and judging by the postings on this site, retail investors have even higher exposures to US stocks given that it has been outperforming for so long.

 

[Sarenco]

Equity indexes use a company’s market capitalisation to decide how much weight its shares will have in the index.

By definition, a world equity index cannot be overweight US or IT (or any other country or sector).

If you want to take a view that is contrary to the market consensus at any given point in time, well, that’s your prerogative.

But if you overweight or underweight any particular security, country or sector relative to the market, you are actually creating a less diversified portfolio.

 

[Flybytheseat]

By definition, a world equity index cannot be overweight US or IT (or any other country or sector).

That is quite a statement but unfortunately totally incorrect. The S&P 500 index was >30% made up for by the magnificent 7 at its peak so overweight in the IT sector due to the growth in those 7 stock. The MSCI world index is 70% US equities so arguably overweight in US equities.

 

[Sarenco]

That simply reflects the market capitalisation of those companies.

Market capitalisation refers to the share price times the number of share outstanding.

In other words, that’s the value attributed to those companies by the market at any given point in time.

By definition, an index cannot be overweight any particular company or sector.

The market determines the market capitalisation of every publicly traded company and that is simply reflected in the relevant index.

 

[ClubMan]

Now that I write it down, I don't know if that question makes sense.

No, it doesn't really.

 

[ClubMan]

By definition, a world equity index cannot be overweight US or IT (or any other country or sector).

And even something like a conglomerate like Berkshire Hathaway, while being a US company, does significant business in other geographic regions and owns or controls businesses outside the USA so that also gives some level of diversification.

 

[ArthurMcB]

We were just talking about a stock market correction this morning and I was wondering was what has happened over the past few weeks a stock market correction or the result of some of Trumps actions and is the market correction, that so many have been speaking about for a long time, still to happen?

Now that I write it down, I don't know if that question makes sense.

Do you mean the recent correction resulted from tariffs but given that a correction has been mooted for a while and companies seemingly over priced - is there another correction looming?

Fair question i think, i dont know that answer but im sure someone knowledgable like @ClubMan can opine.

 

[joe sod]

And even something like a conglomerate like Berkshire Hathaway, while being a US company, does significant business in other geographic regions and owns or controls businesses outside the USA so that also gives some level of diversification.

Are you sure about that a quick google shows it has 47% of its stock portfolio in just 3 companies, Apple , American Express and Bank of America, it also has a huge investment in US treasuries which Trump has also been messing with indirectly as we have seen recently. Thats the one thing about Berkshire they have invested very little outside the US apart from BYD and some Japanese exposure but it is still insignificant