Second property purchase approach advice (transfer of property to ltd company)

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    Second property purchase approach advice (transfer of property to ltd company)

    Hello everyone,

    I am thinking of purchasing a second property and wanted to get your thoughts and advice on my current thinking.

    Current Situation:
    • I bought a flat worth £340k two years ago to live in as a first-time buyer.
    • I incurred ~£10k of SDLT and legal expenses that I deemed capitalised hence a total cost of £350k.
    • The initial two year fixed repayment mortgage of 1.8% is about to lapse and I am currently looking into remortgaging on a two year tracker with no early repayment charge to give me more flexibility
    • The mortgage amount left is ~£200k (LTV<60%) and 28 years
    • I estimate that the property is worth £320k and can achieve a rental value of £1350 (zoopla estimation is lower though)
    • Net rental income is £870 after service charge & ground rent of £130 and £330 of interest expense (based on 2% interest)
    • I want to let out the property I currently own and buy a second property worth £500k to live in
    • I am planning to finance the purchase by:
    1. borrowing £300k on a joint mortgage application with my partner (or perhaps solo)
    2. release equity from my existing home
    3. fund the remaining balance from own funds
    Proposed strategy:
    • I understand that with the current regulation any second property purchase is going to incur a 3% SDLT surcharge. Therefore, if I keep my current property I will have to pay £30k rather than £15k in SDLT.
    • To avoid the SDLT surcharge, the solution I came up with is to transfer my current property into a company SPV which would mean that I will not own any property at the time of the second property purchase.
    • I understand that the company will have to pay SDLT of £6k (assuming a £320k valuation) as part of this transfer.
    • I understand that I will need to arrange bridging finance and I will also need to personally guarantee the loan as a director.
    1. Is the transaction that I have outlined above feasible or have I missed any key issues? Any other logistics I need to be aware of?
    2. Would the personal director guarantee limit my ability to get a joint mortgage or the extent of borrowing?
    3. How much equity would I be able to release from my current property?
    4. Any other alternative strategy I can follow to achieve the same result?
    5. In addition to saving on SDLT of the second purchase, I understand that I will have further tax benefits such as netting of interest cost against profits and getting taxed on corporation tax rate rather than personal income tax rates (higher rate). If I decide to sell the property, I can sell the SPV rather than the actual property which would mean that the buyer would not have to pay SDLT hence making it a more attractive sale. Is this last point accurate and would it translate to an increased valuation?
    Thanks for your time and I appreciate any thoughts or advice you may have.

    Thanks for such a comprehensive posting and one which raises numerous issues.
    Regrettably transferring the property into a Limited Company will not allow you to avoid the SDLT premium.
    In terms of the actual transfer will not only result in the SDLT premium but on a personal basis the disposal by you is treated as a Sale & Purchase and carries , depending on the actual figures a potential Capital Gains Tax. All of this definitely needs a consultation with your accountants.
    On the domestic front, a lender will assess your single/ joint income on their respective affordability assessment, the only element of income which you won’t have included is the rental income , and remember assessment takes full account of personal loans, credit card liabilities, Student Loans together with domestic outgoings covering Council Tax and Buildings Insurance. The fact that you will have provided a Personal Guarantee for the Limited Company borrowings will not limit or enhance your eligibility for a new residential mortgage.
    Before you do anything premature I would recommend talking with your lender or broker to establish the level of borrowings for your residential mortgage, then establish how much you can borrow as a Company Director for the Let to Buy mortgage using the Gross Rental and NOT nett of Ground Rent and Service Charge.
    I am sure many other posters will have constructive advice to help you to go forward with your plans.


      Making alot of money and business is easy but people over complicate everything. Here is a great example.


        Originally posted by G56trader View Post
        Making alot of money and business is easy but people over complicate everything. Here is a great example
        Yeah, that's why everyone's got a lot of money and "business" - because it's so easy!
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


          Originally posted by jpkeates View Post
          Yeah, that's why everyone's got a lot of money and "business" - because it's so easy!
          No. I said most people over complicate everything. Are you on here 24/7 ?


            From the forum rules

            7. Be civil – watch your language and do not insult or antagonise other Members.

            I also post as Mars_Mug when not moderating


              I believe a company ( as buyer of £320K property ) will pay a lot more than £6K for sdlt .



                Using the SDLT calculator the SDLT would be £15600.


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