Stamp Duty Limited Company

Stuart91

My wife and I currently own a flat worth £75,000. We plan to soon buy a house worth £225,000. We plan to keep the flat to rent out. To minimise the stamp duty bill is it possible to transfer the flat over to a limited company and pay 3% stamp duty on £75,000? Would then purchasing the house not be considered a 2nd home and instead of the higher rate stamp duty for the more expensive property, we would only have to pay the standard stamp duty rate on the £225,000 home? If this is possible this would work out cheaper for us than keeping the flat in our own names and paying the higher stamp duty rate on the new house.

[Deleted User]

Stuart91 wrote: »

My wife and I currently own a flat worth £75,000. We plan to soon buy a house worth £225,000. We plan to keep the flat to rent out. To minimise the stamp duty bill is it possible to transfer the flat over to a limited company and pay 3% stamp duty on £75,000? Would then purchasing the house not be considered a 2nd home and instead of the higher rate stamp duty for the more expensive property, we would only have to pay the standard stamp duty rate on the £225,000 home? If this is possible this would work out cheaper for us than keeping the flat in our own names and paying the higher stamp duty rate on the new house.

You might save on SDLT but what about the other costs of setting up and servicing the limited company? Is there a mortgage outstanding on the £75k property and if so will it be fully repaid before the transfer?

Stuart91

Cost of setting up a limited company is minimal. When you say servicing can you advise what you mean by that? And no the mortgage will not be fully paid off, so whether or not I was using a limited company I would be transferring to a 75% loan-to-value buy to let mortgage either way. I have had some advice on mortgages and although buy to let mortgage interest rate is higher for a limited company, it is only slightly higher and only makes a minimal difference on mortgage cost overall. We also will not be affected by a capital gains tax bill.

Doozergirl

Not capital gains, but corporation tax instead.

Stuart91

Yes corporation tax on rental income. This actually works out more tax efficient for us.

anselld

Stuart91 wrote: »

Yes corporation tax on rental income. This actually works out more tax efficient for us.

... and on the increase in value when you subsequently sell, without any equivalent of the personal CGT allowance.

Plus personal tax when you draw income from the Co.

Plus preparation of annual accounts, tax returns and companies house submissions.

Probably cheaper in the long run to sell the flat and buy a similar one later on.

SDLT_Geek

The SDLT issue is addressed in these Case Notes https://www.blakemorgan.co.uk/sdlt-case-notes/ in the piece put up on 15 November 2019. It says that a property owned by a limited company does not "count against" the individuals who control that company if the individuals are buying a property.

Stuart91

Thanks STLD Geek, that’s helpful.

silvercar

anselld wrote: »

... and on the increase in value when you subsequently sell, without any equivalent of the personal CGT allowance.

Plus personal tax when you draw income from the Co.

Plus preparation of annual accounts, tax returns and companies house submissions.

Probably cheaper in the long run to sell the flat and buy a similar one later on.

You would be paying tax on the rental income (the profit element) anyway.

One upside is that the interest on the mortgage will be an allowable expense of the limited company and you won’t face the restrictions that higher rate tax payers face on that if it was personal rental income.

Stuart91

The corporation tax on rental income combined with dividend tax on any salary we take from the company works out more efficient than what we would be charged in income tax if it wasn’t through a limited company.
In terms of selling it at some point in the future, we plan on keeping it for a long number of years as it provides a really good net income that we could unlikely achieve by selling and buying another property at a similar price. Even if the flat wasn’t in a limited company would we not be subject to the same taxes if we were to sell years down the line, since it is a second home that we would have been using as a “business” to receive income from?

csgohan4

if using a limited company, assuming you need a mortgage, wouldn't it be a commercial mortgage? which are usually more expensive?