Transfer of equity

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    Transfer of equity

    Hello, I've been trying to sort out my structure for a while and keep hitting dead ends and so i thought i would see if anybody on here has any suggestions. I have a number of properties held jointly with my brother and a number held in a limited company. I want to transfer the personally held properties over to my company due to the changes to mortgage interest relief. My brother wants out of the business. So what i want to do is change the properties held jointly with my brother to my name and my wife's name and then my brother will take his share by me gifting him a property outright. I want to form a partnership with my wife so that in a few years i can incorporate these properties without paying stamp duty. I work full time in my property business and so should qualify for incorporation relief so no CGT either. That's the background. The problem i'm having is that some mortgage companies wont allow a transfer of equity as they say it's new borrowing and they aren't doing any new borrowing. Does anybody know if a change in beneficial ownership needs to be reflected in the mortgage account details? They didn't know but thought it should match up but generally weren't sure. It's very difficult to borrow any money at the moment so remortgaging isn't an option according to my mortgage adviser and i need to incorporate as soon as practical as this new tax arrangement is not sustainable. My mortgage adviser says i should sell some to free up capital but i'm reluctant to do this as i've spend years building my portfolio and finding and buying suitable rental properties is where all the hard work is.

    I'm really quite stuck as i can't stay as i am and i can't move forward so may be forced to sell. I guess this is what the government had in mind when they made the changes but i have spent 20 years building my business so am reluctant to do this. Any thoughts or advice welcome.

    Thanks.

    #2
    You can't prevent CGT by transferring to a limited company (that is a CGT event),
    nor can you prevent CGT via barter or via gifting.

    The CGT is payable by you (and brother) when you transfer, not by the company.

    There is also the small issue of stamp duty given the mortgages.

    You could I guess transfer 12.5K worth of gain between you and your brother each year (in each direction)

    Comment


      #3
      Originally posted by jackboy View Post
      The problem i'm having is that some mortgage companies wont allow a transfer of equity as they say it's new borrowing and they aren't doing any new borrowing. Does anybody know if a change in beneficial ownership needs to be reflected in the mortgage account details? They didn't know but thought it should match up but generally weren't sure.
      You're not talking about changing the beneficial owner, you're talking (as far as I can understand it) about changing the title on the properties.

      But to answer the question asked, your mortgage terms and conditions almost certainly do stop you changing the beneficial ownership of your mortgaged properties without the lender's consent.
      And while whoever you were talking to may not have known, the lender will know - a beneficial owner would have rights in conflict with the lender's charge on the property.

      I suspect that you need to find a new lender who will allow your wife and you to raise finance to buy out your brother.
      That will cause him to pay CGT but not you.
      When you and your wife own the property, you might be able to incorporate the property into the business with incorporation relief (assuming your wife is part of the same business, otherwise her share won't qualify (AFAIK).

      What you need to do is buy your accountant lunch!
      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).

      Comment


        #4
        I can confirm that from a lenders point of view , they will not allow the current mortgage structure to be amended. To do what you wish then a new application would need to be made and underwritten accordingly and on what rates are presently available. If there are any ERC's in place you will have to stand them.
        Transferring property from a personal capacity to a limited Co are treated as a Sale & Purchase , and as JPKeates has indicated , CGT less individual annual exemptions kick in and the company will indeed have too stand the SDLT plus premium.
        Do speak with an accountant , as I understand it , the new joint ownership would need to operate for a specific period , I think two years, before it is granted a Partnership and only then can a transfer be made to a Limited Company and then there will be a new mortgage at Company rates etc.

        Comment


          #5
          Hello, thanks for the answers. I’ve tried about 5 different accountants and none of them were very sure about anything which is why I have done quite a bit of looking at this myself. It was the mortgage company I was talking to about transfer of equity but they weren’t sure. They bought the mortgage book off mortgage express and don’t have a lending licence so they aren’t able to make changes to the account details as this is classed as further lending apparently. Other companies do have the facility to do a transfer of equity. As the equity would be gifted and the amount of mortgage transferred, my brothers half, would be below the stamp duty threshold then no stamp duty would be due. My bother and I started buying properties together in the early 2000’s and now both have our own families which is why we want to disentangle our affairs. As it’s a full time business for me then incorporation relief should apply and as such no cgt would be due on transferring to a limited company. I could in theory register the partnership with my wife immediately but would need to operate as a partnership for at least 2-3 years before qualifying for partnership relief on incorporation. I’ve basically exhausted every avenue and so am going to have to pay stamp duty of transferring my properties over to my limited company. I know that technically the company is a separate legal entity but it still annoys me that I have to pay stamp duty again to transfer something I own to a company I own because of the punitive tax changes but I suppose that is what the government had in mind. The only positive I can find is that as I am transferring 10 properties I qualify for non-residential stanp duty rates avoiding the 3% residential weighting in rates for second properties. The tax is still significant but much less than residential rates.

          Comment


            #6
            Originally posted by jackboy View Post
            As it’s a full time business for me then incorporation relief should apply and as such no cgt would be due on transferring to a limited company.
            I'm pretty sure that ^ is not correct, as are some other parts. In the first place, your brother is the person initially getting rid of assets - the fact that you are incorporating has no relevance to his tax liability. Second even if you could persuade HMRC that what you are doing is reasonable (if they deem it in retrospect as unreasonable you will be due a mass lump of CGT all in one go - which is why you need to clear it with them in advance) all you are doing is delaying CGT on your half, perhaps delaying to a year when a Corbyn clone will be in power with CGT rates of 90%.

            You still have the problem of "gifting your brother a property outright" instead of paying him out for his share -- that is not a CGT neutral thing either.

            Comment


              #7
              The mechanism of moving properties into a partnership and then into a company is offered by companies as a solution to the problem of incorporating personally owned property into a business without paying a whole shedload of CGT.

              That would solve a number of issues for me and I have looked at it in some detail.
              The problem is that no one has ever been able to show me someone who's actually done it, successfully, in real life.

              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).

              Comment


                #8
                It the lender acquired the MX mortgage book , then there will be no amendments allowed , so far as they are concerned they want their money back sooner rather than the mortgage term,and will not permit any variation to the current position. This is standard practice for any close mortgage lender including the likes of the one you have mentioned and CHL.

                Comment


                  #9
                  To qualify further my previous comments , I believe your mortgage may be held by Jasper Mortgages, a subsidiary of Topaz Home Loans.
                  I am presently handling a substantial mortgage portfolio wherethe borrower sadly died unexpectedly and Jasper Mortgages ( Mortgage Express ) is one of the 16 lenders, They have made it abundantly clear that they will not permit his wife to replace him as the primary borrower and seek the full repayment once the Grant of Probate has been granted, a matter doubly complication by difficulties with his own mother’s demise a few months previously. Jasper are very understanding but they want their money back ASAP.

                  Comment


                    #10
                    AndrewDod,

                    Thanks for your reply. I think you are right about the gifting and CGT but in this instance this is unavoidable and manageable. My brother owns a share of multiple properties held within our business and is changing these for one full property which we will then pay CGT on when it is extracted. The remainder will then be incorporated. The plan was to remove my brother before the incorporation. Regarding the incorporation relief I have looked at this in quite a lot of detail and gone through the Ramsay v HMRC literature very carefully and also the HMRC manual. In the manual they conclude that if a person works 20 hours per week in their property business then they will qualify for incorporation relief. When you go back to the full Judges decision it makes no mention of 20 hours per week as being the necessary test and in fact it says that the hours aren't actually important. It just happened that Ramsay worked 20 hours per week but actually the activities she did didn't seem to amount to an awful lot. But that is the bar set by HMRC and I have worked on average over the last 10 years a lot more than 20 hours per week and in activities that are classed as business activities. I went back and forth for ages on the clearance idea and spoke to multiple accountants who advised different things. In my case I do not believe it is possible to obtain a non-statutory clearance from HMRC before the transaction because the manual is clear. If you do 20 hours or more of business related activities then you qualify. They will only give advice where there is ambiguity I think.

                    Comment

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