Multiple Properties - Form a company

RedTiger123

Hello everyone. I currently own 6 properties, 5 of which I rent out. These are all privately rented houses.

When I sell each individual house in the coming years, the issue I was it capital gains tax. Some are lower than others due to having money spent on them (renovations, etc) but overall the tax is quite high and the money saved from each house can be used to help further improve the others.

I have been advised by a few people to set up a company, in which I can give myself shares etc. and place the houses within the company.

Can anyone further enlighten me on this as the people who have told me to do this have limited knowledge. I am struggling to understand how this would work.

If you require further information please don't hesitate to ask me, and thank you all in advance!

chrismac1

The arithmetic is in principle straightforward. As an individual you have £11,000 per tax year before any CGT is calculated, and the highest rate of this which probably applies to you, given your post, is 28%.

A limited company has a CGT tax-free band of zero but a corporation tax rate of 20% - 21% if it is a large company which is unlikely here.

So when the gains you are likely to build up are big enough, the 8% saving in the marginal tax rate outweighs the £11k tax-free band. That works out at £137.5k in gross gains.

That's with a "green field site" start-up property business. Here you already have the properties in your name. So transferring them into a limited company would build up costs of a few £000 per property in legals. Possibly a more sensible strategy is to set up a company into which you place future properties, and let the existing portfolio run itself out as you sell up.

In my view, whoever wins the 2015 election is likely to make significant changes to CGT. For example many senior Liberals want to reduce the £11k to just £1k. And the 28% top rate is the lowest it has been for about 50 years. Most G20 countries are not so generous.

So there is considerable scope in CGT to boost the country's income by a few billion per tax year, at a cost of few if any votes.

anselld

chrismac1 wrote: »

So when the gains you are likely to build up are big enough, the 8% saving in the marginal tax rate outweighs the £11k tax-free band. That works out at £137.5k in gross gains.

That's fine, but how does the OP get the money out of the Company without further tax liability if they are a higher rate tax payer?

Surely the additional dividend tax would wipe out any CGT saving.

chrismac1

Well that's a separate issue and depends on the OP's circumstances - age, whether he or she is married or has children aged over 18, need for immediate cash, willingness to set up a SSAS and so on. I thought my post was long enough without rabbiting on about all that.

Pennywise

anselld wrote: »

That's fine, but how does the OP get the money out of the Company without further tax liability if they are a higher rate tax payer?

Surely the additional dividend tax would wipe out any CGT saving.

Your comments are spot on IF the OP wants to draw out the money for personal needs. But, more likely, they'll re-invest the money in other properties or investments, and/or just draw down dividends over a very long time period keeping within the personal basic rate band. £300k sat in the company can be paid out over 10 years with no personal tax at £30k p.a. - quite a handy pension fund plan really.

antrobus

chrismac1 wrote: »

....
In my view, whoever wins the 2015 election is likely to make significant changes to CGT. For example many senior Liberals want to reduce the £11k to just £1k. And the 28% top rate is the lowest it has been for about 50 years. ....

On a point of order.

Not so. CGT was a flat 18% under Darling

chrismac1 wrote: »

....
So there is considerable scope in CGT to boost the country's income by a few billion per tax year, at a cost of few if any votes.

A "few billion per tax year"? The Lib Dems have claimed that cutting the annual exemption to £2,500 will raise £250m, and that putting the rate up to 35% will raise £750m.

Interestungly enough, increasing the rate from 18% to 28% has resulted in lower CGT tax yields. I doubt there is much scope at all.

chrismac1

How much would a change in the rate of Entrepeneur's Relief from 10% to 20% bring in? Quite a bit if my client base is anything to go by. At a cost of a handful of votes.

purdyoaten

chrismac1 wrote: »

How much would a change in the rate of Entrepeneur's Relief from 10% to 20% bring in? Quite a bit if my client base is anything to go by. At a cost of a handful of votes.

I would agree - it's all here!

The amount of gains above £1m where ER was claimed rose tenfold between 2009/10 and 2012/13

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/368494/National_Statistics_2014.pdf

Savvy_Sue

I nearly posted in the early hours of this morning to say "talk this through with an accountant" but decided I wasn't sufficiently with it to give any justification for that beyond 'it's complicated, and it depends'.

The posts which have appeared since then lead me to say "I rest my case!"

RedTiger123

Thanks to everyone who has replied - I am taking in everything you are saying and I really appreciate the help.

If I was to sell the propertys, would it be better done as I am or within a company.

Let's say the houses are worth £1 million total - what is the best option here as the capital gains tax on each could be paid on figures of £20,000 - £100,000 per property.

Thanks again in advance!

RedTiger123

Also, mine and my wife's income are in the lower tax band - 20%

We have a son who is who over 18, one under 18. Can we put a house in their name? Would that help?