Is it worth setting up a buiness and selling my house to it.

col1981

Hi these are the circumstances I am in. I own my home with a mortgage I have a reasonable amount owing short of 90k, the home is valued at 135k. I have 85k savings from being made redundant. My gf wants to move to a bigger home so start our family.
I want to release the equity from this home to be able to afford a bigger home.
I want to keep the existing property to rent it out.
I am willing to invest my 85k in possibly setting up a business and using it as a lsrge deposit to buy my property for market value.
The house at the moment is my primary place of residence.
I am after some advice really of what my circumstances are and if it's a viable option to me to complete the above. And any genuine alternatives would be great. Also if I can have the 85k used as a loan to the business which could be paid back upon the property being sold at a future date ring fenced.

AdrianC

There's two questions here. Only you can answer either of them, let alone both.

The first is should you have a rental property if you're trying to step up the housing ladder yourself.

Think about how you're going to fund both properties - you've only got 33% equity in the place now, and want to release some. BtL mortgages tend to be 25% LTV minimum. Think about the effects of the tax relief changes on the mortgage and your profits. Think about voids. Think about maintenance and damage and how big a cash buffer you have. Think about whether THAT property is the best combination of yield and rentability and maintenance and...

Only if you're absolutely, definitely, 110% positive that this is what you want to be doing, then you can start to think about the second - how that rental should be owned, through a limited company or directly.

Think about accounting costs and tax. Think about the potential for future tax on corporate ownership of residential property.

TrickyDicky101

I have no idea why you would want to sell your home to your business - what is driving this consideration? What do you think it would achieve?

eddddy

Part of your plan seems to involve buying a bigger house to live in, presumably with a mortgage. But it sounds like you currently have no job/income and no self-employed accounts yet.

I don't think any lender would give you a mortgage on that basis.

agrinnall

eddddy wrote: »

Part of your plan seems to involve buying a bigger house to live in, presumably with a mortgage. But it sounds like you currently have no job/income and no self-employed accounts yet.

I don't think any lender would give you a mortgage on that basis.

While I agree with your conclusion, I think it's actually worse than that, the OP wants to get a commercial loan to buy the bigger property through a company that doesn't exist, therefore has no filed accounts or financial history, and which has no obvious plan for how it will make money.

I personally think that the OP needs to get a grip on reality.

teddysmum

Before taking any risks, especially going for a more expensive property, possibly needing higher upkeep ( council tax, cost of heating etc may be more) you need to secure employment.


You may need the redundancy money to fund day to day living until you are fully employed again. Some people are lucky enough to find work quite quickly, while others take months or longer.

col1981

i don't think ive explained myself properly from the replies in this post. I have 85k cash in the bank, I also have a income of 2.6k a month after tax. the outstanding current mortgage I owe is 88k on this home which is owned solely by myself. my partner wants to buy a home together. I wish to keep hold of the existing home to rent out, I also have someone lined up to rent this for £175 a month more than my current mortgage repayments.
my question relates to keeping hold of my house in a way of under a business whilst investing the 85k into it, whilst selling it to the business for the market value. This would allow me to avoid any capital gains on 35k which is the difference in valuation from when I bought the property to current date ( if in the future I sell it on). This is my primary residence at the present time.

Thrugelmir

col1981 wrote: »

I also have someone lined up to rent this for £175 a month more than my current mortgage repayments.

If it were that simple everybody would be letting out their property rather than selling it. My concern would be that you haven't given this part of your plan serious thought. Running a property letting business isn't a guaranteed pot of gold.

col1981

not everyone has 85k cash to do something with at 34years of age

booksurr

col1981 wrote: »

my question relates to keeping hold of my house in a way of under a business whilst investing the 85k into it, whilst selling it to the business for the market value. This would allow me to avoid any capital gains on 35k which is the difference in valuation from when I bought the property to current date ( if in the future I sell it on). This is my primary residence at the present time.

- invest 85k into the new company as a director's loan
- sell the property to the company for full market value. No CGT payable by you as it is and always has been your only home
- company pays SDLT on the purchase (assuming value > threshold)
- company now broke as it has spent the cash you loaned it in buying the property from you
- company needs to borrow additional funds in order to meet the funding shortfall between capital introduced (85k) and debt owed to you (market value)
- you need cash in order to repay existing mortgage in full so that you can sell to the company, having invested in the company the only place you can now get cash to complete the cycle is to withdraw it back out of the company.
- company now trying to find BTL mortgage / other funding at commercial rates with no financial history/standing and a very modest income stream

great plan, now go off and start again

Thrugelmir

col1981 wrote: »

not everyone has 85k cash to do something with at 34years of age

Use it wisely. There's no need to let it burn a hole in your pocket. Consider your options properly and make a decision after costing fully the options available.