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I'm new to this so bear with me. I have set up a LTD company to purchase BTL. My question is it is the first property the LTD company is buying sondo I need to pay stamp duty on this property at the 3%? It's a bit of a grey area in my eyes as it could be classed as a second home owned by me.
Hopefully someone one can clear this up.
The company pays SDLT at the company rate
It doesn't qualify for a reduced rate on its first purchase in the same way that an individual does
Bang the numbers through the calculator. Note question 4 "Status of Purchaser"
The bigger question is why are you using a limited company in the first place?
Buying or transferring a property portfolio into a limited company simply to offset the S24 reduction in mortgage interest relief rules has many disadvantages which can be summarised thus: -
· Liability to capital gains tax and stamp duty if you can’t prove your entitlement to S162 incorporation relief (you must be working 19-hours a week or more in the business or pull the wool over HMRC’s eyes via a temporary LLP).
· Upfront remortgage costs such as early redemption charges, brokers fees, lenders fees, and legal fees.
· Most lenders won’t lend to limited companies, and none are keen on so called ‘beneficial interest company trusts’ as they fundamentally weaken their ability to pursue the debt.
· Significantly reduced choice of lenders and higher interest rates.
· Lenders will mostly require a personal guarantee (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.
· A limited company is fully visible to HMRC and subject to corporation tax, dividend tax, income tax, and national insurance.
· It’s almost impossible to mitigate inheritance tax (40%) without expensive (at every stage) and ultimately uncertain ‘opinion-based’ trusts, meaning that your heirs may have to break up your hard work just to pay the tax bill.
Can I just query your last bullet point please?
"It’s almost impossible to mitigate inheritance tax (40%) without expensive (at every stage) and ultimately uncertain ‘opinion-based’ trusts, meaning that your heirs may have to break up your hard work just to pay the tax bill."
What about Business Relief? It seems like a relatively simple process and one that seems far more user friendly than dying and leaving loads of property not within a vehicle.
Landlord with 25 years’ experience in the property market and a specialist in tenant referencing ID and credit screening. Creator of identity, credit and anti-money laundering system ValidID.co.uk
In simple terms, investment companies i.e. those that hold property for the purpose of collecting rent do not qualify for business relief. Only trading businesses do.
If as you say the limited company route isn't the way to go, which route would you recommend
Probably best to talk, and can you please email me your contact details (email@example.com) and I'll give you call early next week. Sorry that I can't do it before, but am back to back with client meetings until Monday.
Yes good point I didn't think of it that way, because my property company is a trading business and not solely an investment company.
By your definition or by HMRC's?
I always tend to use HMRCs definition for calculating tax because they are by far the easiest to defend in court if need be.
Which of HMRC's definitions? They use at least three depending on which part of the tax code you are looking at.