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Simon Allen · 26-09-2012, 03:47 PM

This post is with my clients blessing.

I’ve got clients aged 63 and 60 who own 36 properties worth £3.6m .Rent £200k,costs £40k,interest £60k. Mortgages are c 50% of this and they want to set up a new limited company and sell 12 to it now and the rest in the future at market value. Rationale behind this is;

1. 3 children-make them equal shareholders for equity,income & IHT planning
2. Protect the personal assets against any future financial claims from tenants
3. Feels they will be able to sell them easier this way when he passes away

Point 1-already has properties in partnership with individual children but different equity and rents so wants to even it out
Point 2- I accept but if there are other properties outside the company then it reduces the risk but doesn’t eliminate it
Point 3- Selling 36 properties in one go will bring in buyers wanting a bargain so I doubt market value will be achieved

I usually see the reverse of this transaction and my “gut “feeling tells me there must a better way without involving a refinance. As well as CGT, there will be significant legals, higher costs of borrowing and fees. Would welcome your views as whilst it is a good deal for me I'm not convinced it's in their interests,

John Corey · 27-09-2012, 11:09 AM

I am not sure there will be significant costs beyond the costs they will have in any event when the estate starts passing from the present owners to the future owners. In other words, there is a cost to dying and transferring assets.

If the approached is followed there could be a minimization of the capital gains tax impact and a smooth reduction in the IHT. Some careful planning has to take place so everything is done correctly.

How easily the Ltd Co can raise finance might be a risk. At 50% LTV it might be just fine.

Broadly speaking the plan sounds reasonable. I think it is good enough someone needs to invest the time and work through the real details. What are the true costs? What assumptions are critical to the process? How long will it take from start to finish? Where does IHT factor in?

Lisa Orme · 27-09-2012, 10:39 PM

At their ages they will struggle with finance for a Limited Company. Not impossible but very limited options.

As you say they'll face CGT and SDLT too if they aren't careful.

There is a way they can do this and not pay either or have to refinance but depends who their current lenders are. Are you able to drop me a PM or email with a bit more detail and I can let you know if we can help.

Lisa
lisa@keys-mortgages.com

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