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  • Tax

    Transferring investment ltd co to siblings

    We all live abroad, non UK tax resident, sons and daughters all have dual nationalities.

    The business is a UK property rental income business (mostly HMOs). Its structure is I hold 100% shares of the UK group co, and the group co holds 100% of the shares of 4 other UK companies that each own the UK properties.

    I am 46, my 4 sons and daughters are between 8 years and 5 months.

    The objective is to transfer shares to my siblings at minimal cost.

    I have done some reading but find it a non productive use of my time as I will most likely employ someone or some company to do it for me when the time is right.

    Regards

    Arran.

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    Hi Arran,

    First and foremost: I Can't Help You. Sorry!

    Secondly, I hate posting questions and no one answers, although almost always people are really kind and friendly and do answer. So at least you can say: Someone responded to my post.

    Thirdly I am an expat myself with a small UK property business. I'm curious to know why you used this structure, with four different companies. I'm interested because I'm planning to form a company myself in the near future.

    Thanks. And apologies if you regard this as a nosy question!

    Mike

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     PT is cool

    2 companies I share ownership with a business partner.

    and the other 2 companies are 1 per lender, the lender required a debenture (rather like a first charge) over the company.

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    Hi Arran,

    As you're an expat like myself, I thought I'd approach you for some advice.

    I have three commercial properties worth an average of 90k each, in the north - Yorkshire, Lancashire and Derbyshire. I bought them with cash in 2004, 20013 and 2014, and they are still unencumbered. As an expat commercial holds an attraction because by and large the tenant looks after the property himself, and professional management is not really required.

    Capital appreciation has been low, but rental has been around 10% p.a. and with that modest income (plus my wife's wage) I've now taken the step of stopping working as a teacher, to focus on expanding my property portfolio.

    My plan was to start by releasing equity from two of the properties to create a deposit of around 130k, and then taking a further loan of around 300k against commercial properties that I would buy. Having trundled along at a snail's pace for a number of years I felt that the time had come for my little property business to metamorphasise.

    However the interest-only commercial interest rates that I was quoted were 6.2% for up to 55%LTV, 6.85% for up to 70% LTV, and 7.1% for up to 75% LTV. If I can find properties that yield 8-9% (before tax and expenses) the profit margin is going to be much too low for my needs; increasing my income is my main target.

    I've been grilling three brokers (and raised the issue on this forum) to see how I can get rates closer to people who are 1. UK residents and 2. have a mortgage history and 3. are fully employed.  One possibility is to take a smaller loan now and after a year of credit history to apply for the main part of the loan at a lower interest rate. Another possibility is to find a partner in the UK who might have all the desired attributes and we would perhaps invest 50-50.

    Another possibility is to wean myself off the commercial addiction, and expand my portfolio into residential, and employ a management company, building on a lower interest rate. I guess I'd buy residential through a limited company to avoid section 24. (Although one wonders how long it'll take for that piece of legislation to be applied to companies as well.)

    Another approach would be perhaps to learn from you! Somehow you are able to manage multiple occupancies from a vast distance. I suspect that they are the most management intensive kind of property you can find. I did myself own a student-occupied house in Manchester many years ago. The yields are very high - around 20% as far as I recall. However do you do it from such a great distance?

    You mentioned that you have a business partner. Maybe if he's in the UK that solves the problem of distance, with him/her being on hand locally.

    Arran, if you can give me any advice from your own experience, I would really appreciate it.

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     PT is cool


    Hi Michael,

    I use mortgages from Lloyds, 20 year fixed rate capital repayment, usually they are around 6.5% depending on what libor is doing at the time when the mortgage is setup. They are in fact commercial mortgages to a UK Ltd co, the fact I am non-resident does not seem to bother Lloyds, however it maybe that there is a track record, I don't know.

    From a distance, my background ( from 16 until 41 ) was IT software engineer, so I'm used to coupling together systems to do what is needed.  I employ 3 staff UK based via a UK Ltd co, a "business manager" who chases the rents, leads, ensures regulations are adhered to and arranges the work for the other 2 staff, a "property manager" who does the viewings and recycles the rooms brings them back up to standard, and a "property maintenance" guy who does the general maintenance roof, leaks, drains, gutters, windows, doors, walls, radiators, boilers, electrical fault finding etc.

    I manage them from Thailand, I use Excel with some VBA coding for the book keeping and to produce the tenants rent schedules weekly,  google drive to share the files between computers, and team viewer to remote control the office computer when talking with my business manager.

    I know the area where I buy as its my home town, use rightmove to find properties, the UK based staff visit the properties, give me a sketch of the layout, I then use google sketch to do architect floor plans to convert into HMOs with en-suites.  I liaise with the bank, solicitor, accountant, specialist tax adviser, HMRC, local authority planning directly.

    Hope there is some detail to help you along, please feel free to put any more questions you may have.

    Regards

    Arran.

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    Hi Arran,

    Many thanks for your reply. It's amazing how you've built up your business. I wonder if you like telling the story of how you started? I would be fascinated to hear that.

    Regarding the way forward for me, I find myself a bit bogged down, unable to clinch that first loan (at a sensible interest rate). The first step will be to establish a UK address for my UK credit card and bank account. Even on this small detail I'm bogged down!

    Question: I'm thinking of looking for a partner in the UK. Do you think that it could be a tax-efficient proposition for a UK LL to join forces with an expat like me, and start an offshore company?

    Many thanks, Arran.

    Mike


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     PT is cool


    I had saved capital from my previous career, IT consulting which was invested in stocks and shares.

    During the 2008 housing debacle I saw that student accommodation was pretty much the only investment that went straight through it unaffected.  I then liquidized my position and invested directly into property.

    I have a pretty terrible credit rating myself, due to not being on the voters roll and relatively high unsecured debt, however this has not prevented me taking out commercial mortgages with Lloyds.

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    If the OP might wish to return to the UK and need care in the home or a care home the question of intentional deprivation must arise.

    How would a council perceive such a structure as far as asset values are concerned?

    Could a council undo a structure or take the asset values into account for any care funding assessments?

    It is pretty pointless creating various structures if the council can just come along and take them or into account for care funding assessment.

    The question of intentional deprivation is the most important factor in determining how to create structures to allow transfer of such assets to heirs

     I'm not sure there are any structures which can avoid the council determining intentional deprivation.

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    I think the first question is regarding the transfer of shares.  Shares of an Investment Co are treated differently to that of shares of trading company.  It looks that CGT must be payable by the share owner ie. myself at market value.  I did read somewhere about the use of a "non settlor trust" to move the shares as this apparently does not trigger a CGT event, however I will leave that for the boffins.

    Its just something keeping an eye open for later.

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    Why do you want to transfer the shares to your brothers and sisters, rather than your kids?

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    doh, probably that is why I've had not many replies..... sorry guys and gals, I meant children or offspring.

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