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  • Tax

    S24 implications

    Hi

    I would be grateful for some assistance

    I have 8 BTL properties in my name, they are all at 75% LTV and are on interest only mortgages. They were all bought with the last 2-3 years and therefore the only equity I have in each property is the 25% deposit paid at the start of the mortgage. There has been limited price increase on these properties.

    Each property is in the range of £80000-£100000

    I am based in the NW of England.

    I am a higher rate tax payer

    I was aware of the section 24 but due to personal problems I neglected proceeding with going down the LTD and now I have the 3% stamp duty to contend with.

    A few questions

    1 My mother has a basic state pension and no other income. Could I add her to the mortgage and to do this would I need to inform the mortgage company.

    2 Could I make the split e.g 90% hers and 10% mine as she is the lower rate tax payer.

    3 How do the mortgage companies look at joint applications where one landlord is not earning whereas the other is a higher rate tax payer.

    4 If I am adding my mother to the property mortgage, do I need to pay a stamp duty?

    5 Tax wise is it better to do the above in some form or go down the limited company route and pay the stamp duty fees, higher interest etc.

    Sorry for all the questions.

    Thanks

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    If you transferred in a staggered fashion into a limited company at those values you would be under the SDLT threshold and as separate transactions on separate contract and transfer taking place on different days they wouldn't be a connected transfer.

    Also if you are looking to expand your portfolio maybe worth biting the bullet now so you have the correct structure for future growth

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    Paul Nicholson

    Chief Executive Officer

    Luxor Group

    http://www.luxor-estates.com

    Twitter: @LuxorEstates

    Luxury Landlord & Developer with over 150 rental units across Merseyside

    Thanks for your reply Paul

    As I understand it, there is no minimum for stamp duty charges and even a property worth e.g £40,000 would be liable for the 3% stamp duty (as a second or more property) whether it is sold to a limited company or individual

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    Yeah you are right my old solicitor brain kicked in! It's a difficult situation to face. Been awhile since I have structured house deals like this. Would it benefit from portfolio relief?

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    Paul Nicholson

    Chief Executive Officer

    Luxor Group

    http://www.luxor-estates.com

    Twitter: @LuxorEstates

    Luxury Landlord & Developer with over 150 rental units across Merseyside

    Sorry what's portfolio relief?

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    Multiple dwelling relief

    Where two or more dwellings are purchased in a single or linked transaction multiple dwelling relief can be claimed. The higher rates will apply to claims for multiple dwellings relief.

    Where six or more dwellings are purchased in a single transaction the purchaser can choose whether to apply the non-residential rates of [stamp duty land tax].

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    Paul Nicholson

    Chief Executive Officer

    Luxor Group

    http://www.luxor-estates.com

    Twitter: @LuxorEstates

    Luxury Landlord & Developer with over 150 rental units across Merseyside


    I think you  should  run the figs and see how much tax you would pay

    stress test with a 6% interest rate  If your Tax bill is large you need to think about the company route

    what are your long term plans

    Will you always be a higher rate tax payer in coming years

    I feel as if your using your mother to dig you out of a hole when really you would be better of dealing with this yourself

    If your in this game long term and you don't need an income from property I would bite the bullet and start the company

    as Paul has said

    You have around 4 years to do this time is moving on

    Each year your tax bill will become larger

    I have to ask this question why have not acted earlier than now

    See a good tax advisor and a Mortgage broker

    and start planning now.

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    Learn Change and Adapt ?????


    Thank you for your kind replies.

    @dislexic_landlord, you are right as I should have dealt with this earlier. My only excuse is I went through a difficult period and depression got hold of me resulting in me just about getting to my main place of work. Property was not a priority which I know is not a excuse but this is what happened.

    I am fortunate to earn a pretax £100,000 so the property income is not required to live on and I expect to always be a high earner as I work in healthcare with good job stability. My long term plan is to keep the properties for the next 30 years as it will be my pension, I am currently 33 and have no other pension/savings.

    My mother has a state pension (she is a homeowner) but no other income so I don't think she can get a new joint mortgage in conjunction with myself? Therefore I thought she could be added onto the existing mortgages and we can adjust the split so she owns more of the property. I am happy for her to keep the rental income and she will be free to do what she would like to do with it.

    The problem is remortgaging into the LTD will mean higher fees, stamp duty, higher rates and each property would cost be £5000-£6000 to remortgage. I do not have money available to pay the fees for one property never mind the others.

    My understanding is the government say this will not affect lower rate tax payers but how can it not as they will also not be able to claim interest payments. Where can I get more information about this

    can anybody recommend a tax advisor and the fees they may charge to keep give a side to side analysis.

    thankyou

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    I mostly use Lloyds and Paragon, and they agreed to simply move the mortgages to the Ltd co. so no need for arrangement fees exit fees etc.

    I paid SDLT but at pre April 2016 rates as I did my transfer the last day of march 2016.

    With the properties in a Ltd co the difference is it is possible to control how much of the profit to pay its the shareholders if any at all.  The company may decide to grow, pay just 17% corporation tax and grow the company, buy more properties.

    Today SDLT is the sliding scale from 3% upwards, which has to be paid.

    As for Capital Gains, you can use you last 2 years accounts to determines the value of the portfolio, the value derived from the accounts in my case was alot lower than the value from the mortgage valuations. Or claim S162 CGT incorporation relief so long as you are transferring ALL your properties of the business to the Ltd co.

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    Tax wise a ltd company would work better, but there are other costs involved such as higher mortgage rates so it may not work out better overall.

    Can your mother afford to pay 90% of your mortgages? Or is it your intention to transfer the rental income to her too?

    Remember under S24 you will be charged tax based on your rental income and will get relief based on your finance costs (at the basic rate). Transferring the mortgage payments to someone who doesn't pay income tax seems pointless. If you want to reduce you tax bill you would need to transfer the rental income.

    HMRC does not look kindly on arrangements designed soley to avoid tax, but if the point was to increase your mother's income that should be OK.



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    So using your mother, as a business partner, you would have some room to manoeuvre in terms of a rental share agreement. Which is basically diverting the rental profit over to her. However I do not see any real longevity in this strategy with multiple houses and ultimately shed be paying higher tax before long too I'd imagine, depending on how many properties you have and the rent taken.

    I would say you need to fund a transfer to Ltd company, how ever you decide to do that. If you need to sell one or two to fund then this may be an option. Tax is going down from 19 to 17%, far more attractive than 40% eh!

    This said, this is all pointless conversation as the only advice you should listen to from strangers like us on such a serious matter is, pay a few hundred quid for a consultation with a specialist property tax accountant. Make sure they are not a general practice accountant but a true property specialist. They will tell you how to move on this and if there is a cheaper way out, you'll know it by the end of your call/meeting.

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