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  • Buy-to-Let

    Should I transfer property into a Ltd Co?

    Hi all,  like numerous others I am seriously considering transferring my buy to let properties into a limited company.

     I would appreciate your views on the questions below :

    1.  Presumably I would have to clear the mortgage and then apply for funding ?

    2. Could I sell the property to the company whilst lending the company the money for purchase? Would this be beneficial when taking money out of the company/help with the tax?

    3. If the revenue agree CGT is not applicable, would the starting point for CGT (if we later sold) be at the valuation given when transferred to the company?

    4. At what age can we add children as shareholders in the company?

    5. Any IHT benefits of a company structure?

    Any comments appreciated

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    A simple Google search will reveal that landlords are being told that the only answer is to incorporate, i.e. move their property portfolio into a limited company.

    And, as limited companies can deduct 100% of their finance costs and the like, that would be the obvious thing to do.  The trouble is that what landlords are not being told is that incorporation is a one-way street and will be the most expensive ‘business’ decision/mistake they ever make.  Talk about jumping out of the frying pan and into the fire!

    Here’s why.  Apart from the transactional costs (re-mortgaging, professional fees, etc.) and the significantly higher tax regime that you’ll eventually find yourself in, you’ll have to qualify for what is known as S162 Incorporation Relief.  In basic terms, that means the transfer of ownership of all your ‘investment’ properties at the same time from being in your name, to that of your limited company without having to pay CGT or SDLT in the process.  By the way, you can’t transfer properties one at time, incorporation and S162 is an all or nothing one-way street.

    Pretty much up until the end of 2017 HMRC was happy to give non-statutory clearance for S162 applications, meaning that you had the certainty that there wouldn’t be a massive and wholly unexpected tax bill upon completion.  Sadly, that’s no longer the case, which means that you won’t know whether you have a tax bill or how much it’s likely to be until it’s too late to stop.  BTW, there’s no way back once you incorporate and, as you’ll see later, the tax position gets progressively worse.

    By the way, when it comes to mortgages, upon incorporation you go from being a private individual with a whole raft of consumer legislation to protect you, to becoming a commercial borrower whom the law expects to be able to look out for themselves; which if you’ve ever entered into a non-regulated finance agreement you’ll know is a very different world.

    If, perchance, you’re being told that by using a Beneficial Interest Company Trust (BICT) you can avoid the need to remortgage, then think again.  BICTs constitute a breach of your mortgage terms and conditions, and some lenders have powers to call in the debt if any others do so even if your account with them is otherwise in good order.

    The transactional costs

    The value of your time to one side, moving from being a private landlord to a corporate one will incur you in the following costs: -

    • CGT and SDLT if you don’t qualify for S162 Incorporation Relief (you won’t know until it’s too late)
    • Early redemption charges
    • Brokers fees
    • Lenders fees
    • Legal fees
    • Loss cannot be carried forward

      Whilst not in themselves direct transactional costs, being a commercial borrower impacts you in the following ways: -
    • Significantly reduced choice of lenders and higher interest rates; the majority won’t lend to limited companies, and none are keen on BICTs as they fundamentally weaken their ability to pursue the debt.
    • Lenders will mostly require full personal guarantees on a joint & several basis from all the directors and shareholders (if the company goes bust you remain responsible for the debt).
    • Lenders will take a debenture (legal charge) over the company’s balance sheet, which restricts your ability to make best use of your director’s loan account if at all.
    • You’re tied in to the first lender and their appetite for further lending, if any, meaning that each new acquisition or remortgage may need a new lender and a new company if your existing lender isn’t interested.
    • If property prices fall thereby increasing the loan to value beyond the point to which the lender originally agreed, you’ll have to find the cash difference
    • Restrictions on what you can borrow for i.e. remortgage to fund lifestyle.

    The tax position

    Limited Companies and the individuals within them are taxed up to seven different ways: -

    • Corporation Tax (19% falling to 17%, but could be uplifted for ‘property/investment’ companies, as CGT was for individuals)
    • Capital Gains Tax on personal withdraws of capital resulting from selling assets (10%, 18%, 28%)
    • Directors Loan Account Tax (32.5%)
    • Dividend Tax (7.5%, 32.5%, and 38.1%)
    • Income Tax (20%, 40%, 45%, and 60% on the slice between £100,000 and £123,000)
    • Employees and Employers NIC (12% and 13.8% respectively)
    • Inheritance Tax (40% - ‘investment’ companies, i.e. those that hold residential property for 12-months or more for the sole purpose of collecting rents, are fully subject to IHT)

    For most landlords, the above information will come as something of a shock, despite the fact that they may have already received ‘professional’ advice.  Don’t panic though if you’ve already incorporated, as it may still be possible to significantly reduce the ongoing tax bills, albeit that’s sophisticated accounting territory and not something that the average firm either understands or knows how to do.  But then the same lack of understanding goes for accountants in general when in comes to knowing what to do with property businesses, else they wouldn’t be advising you to incorporate in the first place.

    Thankfully though, there are alternatives to outright incorporation.

    You could simply stay as you are; not every landlord will suffer, and those on basic-rate tax with small loan to values should be ok, albeit IHT and CGT will most likely remain a problem.

    If, however, your goal is to maximise the commercial benefits of building, running, and growing a recognised professional property business that’s fully in line with stated Government policy, and to pass it on as intact as possible to the next generation without suffering the huge disadvantages associated with Incorporation, then a ‘hybrid’ approach could work for you.

    When properly arranged and managed, hybrid tax and property ownership delivers a recognised business arrangement that means: -

    • No need to remortgage or change title, thus no CGT or Stamp Duty
    • Tax from your property income at basic rate regardless of how much you draw
    • Seamless succession planning with Inheritance Tax typically mitigated within two years
    • Two layers of commercial limited liability and protection against family/marital break up
    • Maximum commercial flexibility and choice of finance
    • Being fully in line with Government policy to professionalise the sector and compliant with both the letter and spirit of the law
    • Quick, easy, and cheap to unwind if the rules change
    • More money in your pocket ?!
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    Tony Gimple

    Founding Director

    Less Tax For Landlords


    What a great post Tony. Do forgive me if I am misinformed, but to the best of my knowledge limited companies (and individuals within them) aren't liable for Capital Gains Tax as profits from sale of assets will be liable for Corporation Tax anyway,

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    Mitesh Patel


    Sadly, there are many myths in circulation about incorporation, and the true tax position is just one of them.

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    Tony Gimple

    Founding Director

    Less Tax For Landlords


    Until you take the money out, at which point CGT arises.

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    Tony Gimple

    Founding Director

    Less Tax For Landlords

    I am buying property via a LTD company. My current understanding is if I sold any properties, I am liable for corporation tax on the capital growth/profits. I can then extract the proceeds from the sale as a dividend.

    Are you saying that in this scenario I am potentially liable to both Dividend Tax and Capital Gains Tax? I don't  understand where the CGT comes in.

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    Mitesh Patel


    Hi Tony

    I agree with all your commets. As always everyones situation is unique.

    I have 4 companies in joint names and have a Ltd company which is dormant. My accountant advises me to buy one more property with view to setting up a partnership.

    What structure(s) do you have in mind?

    Jedina

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    If your goal is to maximise the commercial benefits of building, running, and growing a recognised professional property business that’s fully in line with stated Government policy, and to pass it on as intact as possible to the next generation without suffering the huge disadvantages associated with Incorporation, then a ‘hybrid’ approach could work for you.

    When properly arranged and managed, hybrid tax and property ownership delivers a recognised business arrangement that means: -

    • No need to remortgage or change title, thus no CGT or Stamp Duty
    • Tax from your property income at basic rate regardless of how much you draw
    • Seamless succession planning with Inheritance Tax typically mitigated within two years
    • Two layers of commercial limited liability and protection against family/marital break up
    • Maximum commercial flexibility and choice of finance
    • Being fully in line with Government policy to professionalise the sector and compliant with both the letter and spirit of the law
    • Quick, easy, and cheap to unwind if the rules change
    • More money in your pocket ?!
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    Tony Gimple

    Founding Director

    Less Tax For Landlords


    You have given some fantastic info well done

    I have done the Landlord Shuffle and I did it for a number of reasons

    1 it helps with S24

    2 It allows me to fund a directors pension

    3 it allows me to pay my wife a salary 20% Tax Payer

    4  it allows me to travel the Landlords shows and cover all expenses  through the UK

    5 it allows succession planning passing on shares

    6 The company also arranges all repairs and management

    7 when I pass all the Mortgages stay as they are less fuss

    I will not move 2/3 of property I will keep this in my own name

    A lot of comments I see on the Blogs is for new Landlords company formation is the best way to buy and invest

    I am not totally sure this is correct for the very reasons you outline

    I just face the facts now The golden days of property ownership are over and we are all going to pay a lot more tax

    The Govt has done every thing it can to reduce the purchase of property and that the end story

    If you have it now and its profitable hold on to what you have manage it will claim every thing you can and move on

    My buying days are over.

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    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.


    Keep on buying, the BTL market is far from dead.

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    Tony Gimple

    Founding Director

    Less Tax For Landlords


    Its time to sit and watch on BTL

    I am doing a Build to Rent Project so my time is on that sector for the next few years

    If there was a crash and I could make good yields I may return but for present I am out ?

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    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.