Transfter property into ltd company - refund on higher rate SDLT?

Parisii

Purpose of transferring to a limited company is to pay the corporation tax rate rather than the 40% income tax rate. Plus the bonus of claiming back the higher rate SDLT on my current home if this is possible. It's a long term plan so the company selling the rental property would have to be dealt with at the time but I understand that the capital gain would be taxed whether it's sold personally or by the company.

DoctorStrange

You cant reclaim if you own the company that buys it:

"purchase by a close company is not an arms length transaction since you control the company's decision to buy and how much it will pay"

Plus, remember that after you've paid the Corporation Tax at 19%, you still have to pay personal taxes to get the money out of the company.

You might be better off selling the rental property on the open market to reclaim the higher rate SDLT you paid on the more expensive house, then buying another rental property.

It's difficult to say without knowing the full amounts, your other incomes etc.

MDMD

Depending on the value of the property (if it is over £500k) you might also have to pay ATED too:

https://www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics

Parisii

DoctorStrange wrote: »

You cant reclaim if you own the company that buys it:

"purchase by a close company is not an arms length transaction since you control the company's decision to buy and how much it will pay"


Could you send me the link where you found this? It's what I suspected but a number of people have said it's fine if the transaction is done at market value and SDLT/any Capital Gains are paid at the correct rate but I can't find anything online that covers this specific case.

00ec25

Parisii wrote: »

. Is that allowed?

read post #7

00ec25

Parisii wrote: »

Purpose of transferring to a limited company is to pay the corporation tax rate rather than the 40% income tax rate. Plus the bonus of claiming back the higher rate SDLT on my current home if this is possible. It's a long term plan so the company selling the rental property would have to be dealt with at the time but I understand that the capital gain would be taxed whether it's sold personally or by the company.

so you personally will pay CGT when the property is sold to the limited company

yes the company will pay higher rate SDLT on its purchase

yes the company will pay CT on any rental income profits whilst it is the owner of the property

yes the company will pay CGT when it sells the property

have you sought professional tax advice as it seems you need to explore your scenarios more fully to understand them

Parisii

I have sought professional advice and despite everything you list it is still an overall tax saving. The part they are unable to answer (and said they couldn't get an answer from HMRC) was on whether a market value transaction is considered arms-length. I can't see it mentioned specifically in any of your previous HMRC links.

SDLT_Geek

There is no requirement for a disposal of a previous home to be at arms’ length. I wonder where OP got that from??? The guidance makes it clear that a gift can qualify as a disposal. Whatever the disposal, it needs to be a complete disposal with no share at all retained. Nor would it work if the property is to be passed back after.

There is no rule preventing the disposal being to a connected company. As noted above, the company must pay SDLT on its acquisition at the higher rates; this will be charged on the market value of the property if higher than the price it pays.

Parisii

Originally it came from my conveyancer who said it's not considered an arm's length disposal and said I should seek tax advice which I haven't then been able to get clarity on.
SDLT you have given me a glimmer of hope, do you have any links with more info?

SDLT_Geek

This link gets you most of the way there: https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09800