How to transfer a property from personal ownership to a company most efficiently

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    How to transfer a property from personal ownership to a company most efficiently

    Hi all

    Just hitting the remortgage cycle for a property i locked in on a 5 year term.
    I'm going to start phasing these out of personal ownership and over to a ltd company owned by my wife and I (and potentially my children down the line - age 8 and 6).

    I've done my research and have a decent finance knowledge. I know that a ltd co will be the best route for me.
    I'm 40% tax bracket an so this combined with the phased interest dissallowance for personal landlords is good enough reason to make the move.
    I also am holding all properties as long term invetsments (pension pot) and so have no requirement to withdraw any funds for sometime (at least 20 years).

    So, background aside, my question is what would be the most cost and tax efficient route for me to move the property from my personal ownership (joint mortgage) into the company?

    An additional question was to be around one other property that is a few years off remortgage and which is not in a position to move.
    Is there a route where i can feed the activities of that property through the company such that all tax gains occur in that company?
    I.e. do i lease it to the company at the cost of the mortgage - nil personal gain. And then rent it out of that company? Or is that not allowed?
    Any advice on either of the above appreciated.

    Kind Regards

    James

    #2
    There are a number of people and organisations who believe that they can guide you through the transfer using a partnership as an interim stage so that the eventual transition into company ownership doesn't trigger a tax "event".
    I am dubious about this and have never come across anyone who's done it.

    Outside that, what you're basically doing is selling the properties to the business, which will trigger a potential CGT liability for the current owners and SDLT for the acquiring companies.
    Any borrowing will also need to change as the risk profile for the properties are different.

    You can structure your business as you describe, leasing the property to the business at cost and then letting via the company, but as the mortgage interest isn't 100 allowable for you, you'd have to play with the figures to get to the "right" rent.
    I suspect that a) the lender wouldn't allow that - most BTL products wouldn't and that b) it would be borderline tax evasion, because the arrangement is obviously a sham to avoid tax.
    And some of the more recent avoidance/evasion regulations make that more difficult (but I am not an expert).

    I'd be interested in your workings out, because, when I was a higher rate tax payer the cost of transition made the switch pointless.
    If I were setting up my business now I'd run it as a company / companies, but changing once you've already started is a very different proposition.
    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


      #3
      SDLT rates are temporary reduced till 31 March 2021.

      Comment


        #4
        Thanks jpkeates

        Good point on the potential tax evasion concern. I'd agree in hindsight and so that's one i'd definitely rule out.

        Yeah, i've looked into it a few times over the recent years and moving property from personal to company has always been at a cost. But if i;m right there would be limited cost now.

        On sale/transfer from my ownership to company;

        (a) I would be liable for CGT.but the property has seen limited increase

        Purchase Price £112,500
        Valuation £125,000
        Costs to buy £2,274 (solicitors etc.)

        Net Gain £10,226

        Its a jointly owned property so only £5,113 gain per owner - comfortably under the CGL allowance.

        (b) The company would be liable to SDLT but under the new temporary rates none would be due on a property of that value.

        (c) There would be sale and purchase fees.
        This is where i know less. I believe i can just transfer the asset as a gift i.e. at market value.
        As such there would be no sale fees.
        There would be solicitor fees to register the change of owner with land registry, but these should be minimal.

        Hopefully i've covered most considerations, and if so the only potential cost would be (c) the solicitors fees.
        I do believe i can register the transfer at Land Registry myself, but that may be too risky.

        The mortgage is up for renewal, so moving will have no cost, i just need to identify what the difference in interest rates will be But that said, it will be insignificant in comparison to the income tax saving moving to corporation tax.

        Thoughts?

        James

        Comment


          #5
          Your company is going to pay some SDLT because the 3% surcharge applies to company purchases.
          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


            #6
            The company will have to pay 3% if the property value exceeds £40K. Your company will have to pay the mortgage company a valuation fee for your property before a mortgage loan is offered to your company . You can expect the valuation to come out on the low side.

            You should expect to budget :
            Your cgt = Nil.
            Mortgage valuation sat £400
            Company incorporation £200.
            Solicitor £1000
            Land Registry = =£500 .
            Company pays sdlt = £3600
            Mortgage Set up fee = £1995..

            Comment

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