R2R - Just an idea

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    R2R - Just an idea

    If you want to transfer ownership of a property to your own company to rent out, you have to pay stamp duty, maybe capital gains, and also have to sell at market value, not £1 to cut down on tax.
    Then there's rent to rent. So what's to stop a property owner to set up a company, then rent out his property to his own company for £1 and the company in turn rents it out for market value?
    I'm not aware of anybody doing this, so it's probably not possible. Is it because the property needs to be rented out to the company at market value?





    #2
    Presumably the idea of the company is to get full tax relief on the interest payments? How does the guy get the money out of the company to pay his mortgage?

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      #3
      If there was a mortgage, the rent could be set to a figure that covered the payments and allowed the claiming of any allowance.

      I don't see any reason that a property has to be rented at market value by an individual.

      I'm trying to work out why this doesn't work (based on the thought that no one seems to be doing it).
      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).

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        #4
        Good point about the tax relief on interest. I was going to point out that another advantage is that mortgage interest is lower for individuals compared to companies.

        Originally posted by jpkeates View Post
        If there was a mortgage, the rent could be set to a figure that covered the payments and allowed the claiming of any allowance.
        I would assume the rent would already be as high as the market allows. Why would a LL ask for half the rent we could get?

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          #5
          Maybe for taxation purposes, the rent has to be "fair". Same when selling your property to a company, wife, spouse etc for £1 in the hope of avoiding stamp duty. You can sell it at this price as far as I am aware, but for taxation purposes, HMRC will look at the market value and bill you accordingly. That's what I found out when trying to find a way to avoid the increased stamp duty a while back.

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            #6
            There is at least one "specialist" tax firm that regularly attends the landlord exhibitions and who have worked out a complex (to my ears) model of companies, LLPs and private ownership to minimise the tax liability for landlords. It sounds too good to be true and when I spoke to a couple of more conventional tax specialists they suggested that the model exploited a loophole that HMRC could close at any moment and that there were big financial risks to changing ones affairs so dramatically if the option was closed down after just a few months.

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              #7
              Originally posted by kelbol View Post
              Maybe for taxation purposes, the rent has to be "fair". Same when selling your property to a company, wife, spouse etc for £1 in the hope of avoiding stamp duty.
              There are specific rules about selling property, but they don't (as far as I know) apply to rent.
              There are general anti evasion regulations, but I don't see how they're applicable to private individuals.

              I think the issue is that, for most people, the benefits of letting via a company wouldn't apply in the situation proposed.
              There would still be a restriction on the allowance for finance costs.
              Capital Gains would still be tied to the owner (not treated as income for a company and therefore subject to corporation tax).

              So I think you would (for most people) simply add a new layer of tax into the process.

              Many BTL lenders and insurers won't allow a non assured tenancy (which this would be).
              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's not clear to me what you think the benefit of a P->C->T setup is, where P is the natural person owning the freehold of the property on mortgage, C a company that P is owner of, and T the ultimate tenant.

                You're not going to get interest relief since the interest is owed by P not C.

                Jpkeates have pointed out that the BTL mortgage that P holds would likely have restriction against letting out on non-assured tenancy. There will also likely be restriction against letting out to related parties, especially at below market rent.

                If there are any savings in tax, then a setup soley for the purpose of tax reduction would also likely be prohibitied under general anti avoidance rule.
                I am not a lawyer, nor am I licensed to provide any regulated advice. None of my posts should be treated as legal or financial advice.

                I do not answer questions through private messages which should be posted publicly on the forum.

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                  #9
                  Originally posted by KTC View Post

                  Jpkeates have pointed out that the BTL mortgage that P holds would likely have restriction against letting out on non-assured tenancy. There will also likely be restriction against letting out to related parties, especially at below market rent.
                  The same restrictions will apply to the usual R2R. What about when a LL rents out to a council who in turns sticks in all sorts of tenants in your property?

                  Anyway, it was just an idea that came up to benefit from the advantage of using a ltd company, without having to pay stamp duty, more expensive mortgages, etc...

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                    #10
                    Anyone see what happened to Eamonn Holmes in today's paper? He's got to pay £250k in back tax going back 28 years(!) because the tax man did not agree about his company's tax status.

                    https://www.thesun.co.uk/tvandshowbi...-this-morning/

                    I can see this happening to landlords who try these sorts of shenanigans in years to come.

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