Tenants in common: Individual names and Limited company on one title

[anilvek]

Hi all

Basically, before I start, I have spoken to accountants and solicitors who think I am frankly absurd and my proposal is something that is unheard of following which I have decided to not to go with this route, given changing landscape of BTL I wanted to ascertain how absurd my fellow forum dwellers think of this idea and maybe can share their thoughts on why this was a bad idea.

My parents and 2 other partners have a BTL with equal shares as tenants in common (25% each). So there are 4 owners of the BTL in total.

The 2 partners want to sell their shares and I wanted to buy there shares (at market value) in an SPV limited company that I would set up and loan money to. As long as my parents are alive they do not want to get a mortgage on this property.


The purchase is going to be a cash transaction in which at the end the ownership would have been:

Tenants in common:
Mother (25%)
Father (25%)
SPV Limited company (50%)
With a declaration of trust setting out shares

After death, they will leave shares to me/limited company (and I will leave the limited company to them if I die) which would be done by a deed of variation if required.

FAQs

1. They don’t want to sell shares to limited company as they would face high CGT bill.
2. I am a higher rate tax payer and would like to in the future purchase more BTL’s and expand portfolio
3. They’ll never be a mortgage on the property until it is all in the company either through purchasing their shares while they are alive or following probate.

Solicitors/Accountant thoughts:

1. They have never seen this happen and its odd
2. How will you sort the rental income be sorted between individuals and company
3. HMRC may not like this

Thanks

[nukecad]

Your terminoligy is confusing to start.

How can it be a BTL if there is no mortgage? Without a mortgage it's simply a property that they own jointly.

How can they be 'tenants' if they are letting it out?
If they are not letting it out but living there then who are they 'tenants' of?

Also:
How is the rental income currently shared between the 4 parties?

[Lawcruncher]

How can it be a BTL if there is no mortgage? Without a mortgage it's simply a property that they own jointly.

Why does there have to be a mortgage? BTL is not any sort of a term or art with a precise definition. It means no more than it says, which is that a property (understood to be residential) is bought with a view to letting it.

[jpkeates]

1 - Things that are odd and that people haven't seen before are either to be avoided or considered as an innovation. Neither is great when it comes to paying tax.

As far as I can see, your parents and the limited company are all legal persons, so they'd be able to own property together.
It may just be that it doesn't normally happen because it relies on a lot of trust, if people don't do what they agree to, everyone could end up with an essentially worthless asset.

2 - I think the income would have to be split in the proportion of the ownership. That would be the case for three actual people, and the tax manuals don't have any examples of the situation. There doesn't seem to be any reason for that not to be the case.

3 - I'm not sure why HMRC wouldn't like it. There doesn't seem to be any tax advantage in it that doesn't arise from your use of a company structure for your property business, and that's legal enough.

[Lawcruncher]

From a purely conveyancing point of view there is no objection to land being held jointly by a corporation and individuals. It happens all the time with pension funds where the pensioneer trustee is often a company.

[anilvek]

nukecad,

BTL meaning it doesn't have a mortgage is is still be rented out
Tenants in common is a form of ownership
rental income is split 25% each

[anilvek]

jpkeates,

Thank you for your reply

1 - agree, good point. but as I saw it, given the title is tenants in common, whether it will be in my name or in a limited company still the same risk of parties having a worthless asset.

2 - agree I thought that can be done in line with the declaration of trust that would be done in purchase. It would also be prudent for my parents to give their shares to each other on first death and then leave 50% to the limited company. The difficulty they would be left with a 50% limited company if I die first which could be annoying although they could give it to my sister.

Note as part of their wealth planning this is property would be part of their long term plan to leave to me. My sister is keeping the family home with the anticipated IHT liability to be shared by us.

3 - Yes. agree, I thought the fact that the land registry allows this from a conveyancing POV is interesting.

[nukecad]

Why does there have to be a mortgage? BTL is not any sort of a term or art with a precise definition. It means no more than it says, which is that a property (understood to be residential) is bought with a view to letting it.

Agreed it's a loose term, and most rental properties will have been bought with a view to letting.

I was pointing out that the terminology used may be what confused the solicitors.

The term BTL is normally used to refer to a mortgaged property on a BTL mortgage.
Which may mean that the solictiors assumed there is a mortgage involved.

The same with saying the owners are 'Tenants in Common' which may lead to the assumption that at least some of them are living there as tenants and paying rent.

It would be clearer in either case to simply to say that the 4 people jointly own the property that they rent out.

[anilvek]

Hi Nukecad

Thank you for your reply.

In my experience spanning more than 2 decades, I think there is some confusion in your part.

1) the term BTL is typically doesn't refer to a property on a property on a mortgage. its commonly used to differentiate property owned for residential purposes or letting purposes. Landlords that have cash owned properties would still say they have BTL's.

2) When owning property, there are 2 common ways of owning properties. There would be no assumption by anyone familiar with title law or experienced property investors on the important differences between owning a property jointly and by tenants in common.

These terms explicitly refer to the way properties in the UK can be owned.

I'll give you an example in the case I mention above. If I said that the 4 people jointly owned property than that would imply they have a 25% each and on each death the remaining shares are split out equally between the remaining owners. In addition, the title would also be different if the property was jointly owned.

with owning property by tenants in common, the shares of each person are explicitly registered (commonly through a declaration of trust) and the the rules of succession are by usually by wills. This is a high level overview but the summary is that owners of properties can be referred to as tenants in common because that is what UK law defines them as.

[nukecad]

No confusion on my part, I'm just pointing out that rewording your proposal using simpler language may get you further.

I'm not the one having a problem with getting accountants/solicitors to understand a proposed scheme.
But if I was then I'd try rewording it.

[Gordon999]

In post no. 1 , you said :

" Solicitors/Accountant thoughts:

1. They have never seen this happen and its odd
2. How will you sort the rental income be sorted between individuals and company
3. HMRC may not like this"

Your solicitor and accountant may be the odd ones if they have never seen this happen.

The 12 months rental income and expenses are calculated for the property and apportioned according to their percentage stake.

Mother and Father each report 25 % rental income and 25% expenses in their SATR ( self assessment tax retum.)

The ltd Company reports 50% rental income and 50% expenses in the company's Profit & Loss account.