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Hi all, I am hoping to get advise from the more experienced property guru's on this platform.
I bought my first residential property last year in Birmingham due to the nature of job ( I contract and move around a bit) I got a consent to let and rented out the property. I currently live with my boyfriend in a rented flat in London but now looking to buy another property in Chelmsford Essex to live in as I am expecting a baby, purchase price is £400K but the stamp duty is a whooping £22K.
I have been advised to sell the house in Birmingham to my limited company as I will then be classified as a first time buyer for the Chelmsford purchase and will only pay £5K stamp duty a potential saving of £17KI will have to pay £7,500 stamp duty on the Birmingham and solicitor and basic valuation fee ( a total spend of £9K)Just wondering if this is the right way to go about things or should I be doing things differently... any advise will be much appreciated!
I'm not an advisor, but I believe you have been misinformed.
You already own a property so you can't therefore become a first time buyer, even if you sell to your company, although you will no longer be liable to the additional 3% rate. You will pay £10k stamp duty on a £400k purchase without the additional rate.
If you are letting your property on a residential mortgage with consent to let, you will need to factor in the costs of remortgaging this property upon sale to the company, most likely at a higher rate than your current residential rate.
Take some qualified advice, what you have been advised may actually be financially worse.
So if this works your going to save £7K?
I think you need advice and look a lot further than just avoiding 7k stamp duty
You make no mention about your tax band
Putting a property into a company is quite a serious move
Running a company is not cheap and one property unless it was worth a lot of money may not be worth doing
Because you rent your old home you could pay CGT on the sale
I think you're daft unless I am missing something
Just pay the stamp duty it may work out in the long run to be a better option.
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
Hi Yinka,If you sold your property into your limited company, you would incur stamp duty and possibly trigger a CGT liability.I also don't believe that you can be classified as a First Time Buyer if you own another property, even in a company structure.I also believe it poor advice that you have been told to sell your property in Birmingham purely on the basis of stamp duty liability! There is a bigger picture here.I would turn the Birmingham property into a BTL by taking out a BTL mortgage in your own name and redeeming your existing residential mortgage. You may be able to remortgage to a new LTV which allows you to have a bit of excess cash from doing this which could go towards the stamp duty liability on your new property.If you let me know the value of the property, the current mortgage, and the monthly rent, I can give you a rough indication as to how much equity you could release. Doing this means you retain your Birmingham property as an asset, there will be no stamp duty or tax due on Birmingham, and the monthly net cash flow may assist towards your new mortgage payment for Essex.Birmingham has been tipped as a major property hotspot, so, over time, this flat has the potential to do very well from a capital growth perspective.If I were in your shoes, it would be a complete no-brainer to change it to a BTL and hold it for the future, especially as you will shortly have a baby to consider creating a legacy for. The team at Property Tribes Financial Services on 01206 654444 can assist you with a competitive mortgage for the Birmingham BTL as well as a competitive resi mortgage for the new home in Chelmsford, and they can co-ordinate it all to make it a streamlined process.Good luck with everything, whatever you decide to do.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Yinka, it does look correct the advise you got, but you would need further checks.
Basically, your new purchase will classify as first time buyer since you substitute your residential home (but it is now rented out, hence double check!).
Birmingham property would pay additional 3% stamp duty, and CGT if value increased since you bought it.
I am in favour of LTD as an investment company for BTL, is the way to go forward.
your new purchase will classify as first time buyer since you substitute your residential home
The OP has owned a residential property in the past so is not a FTB. From https://www.gov.uk/government/publication...ime-buyers:
A first time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.
You are right.
Not FTB, but still she should be able to avoid the extra 3% stamp duty, if the new purchase substitute the residential home.
In order to avoid the 3% charge on the new purchase, and retain the original property in a ltd company, there will be a 3% charge levied on the sale of that property to the company. The 3% charge hasn't been avoided, it has been transferred to the original property.
Correct, but it sound the Birmingham property has a much lower value, hence it can make sense stamp duty wise and in order to have the BTL in a LTD.