Selling my house to my own limited company - is this a good idea?

Purioso

Hi,

A musing really, hence putting this out there to all you knowledgeable people…

I currently live with my partner, however I have an empty property that I own outright. My plan is to rent my property out and I have been looking at the best ways to maximise my income from this.

 

Do I:

1.      Personally rent my house out, meaning I would have to pay more tax (income tax)?

2.     Set up my own limited company, sell my house to my limited company (so it is still my asset, albeit my company’s asset), then have less tax to pay (because it would be corporation tax, rather than income tax)?

I do not fully understand the implications of the second option, so I may well be off track with my simplistic assumptions. 

 

What are all the benefits/disadvantages of the second option?  I know that there would be costs associated with setting up a limited company.  And, I read somewhere about capital gains tax if you sell your house to your limited company, which would be based on the difference between the initial purchase price and its actual market value now. Is this correct?

 

Any insight would be much appreciated.

davidmcn

Your company would also be liable for SDLT (or equivalent) at the higher rate on its purchase price.

SDLT_Geek

davidmcn said:

Your company would also be liable for SDLT (or equivalent) at the higher rate on its purchase price.

That is right, or on the market value of the property if that is higher than the purchase price (Finance Act 2003 section 53).

Salemicus

Is there a mortgage on the property?

Purioso

Salemicus said:

Is there a mortgage on the property?

Hi, there's no mortgage on my property, it's paid for outright.

lr1277

Out of curiosity, how is the limited company going to fund the purchase? Ae you going to put the cash in beforehand? Or is the company going to get a mortgage / commercial loan? You will only get the money from the sale after completion.

lr1277

Given that mortgage interest is no longer tax deductible, would it not be better to rent out the fully paid property?

If renting out the fully paid property, do you have any sentimental attachment to it? If so, there is the possibility that tenants may ruin it. Just speculating.

tasticz

lr1277 said:

Out of curiosity, how is the limited company going to fund the purchase? Ae you going to put the cash in beforehand? Or is the company going to get a mortgage / commercial loan? You will only get the money from the sale after completion.

OP said they own it outright.

lr1277

tasticz said:

lr1277 said:

Out of curiosity, how is the limited company going to fund the purchase? Ae you going to put the cash in beforehand? Or is the company going to get a mortgage / commercial loan? You will only get the money from the sale after completion.

OP said they own it outright.

The OP may own it outright. But if the limited company is going to buy it from him, surely it needs funds to do that? I suppose there maybe a way of transferring the property to the limited company, but I am not knowledgeable about that.

theoretica

As well as thinking about how the property would get into the limited company you need to think about how it would come out of the limited company at the end, what taxes there would be on withdrawing income from the company - and the property or its sale price in the future (with the added uncertainty that the government may introduce changes there).

edgex

As you own it outright, you're not affected by the changes to BTL tax relief.

How is this Ltd company going to purchase the property?
Do you have enough cash to put into it to buy the property from you?

It's the Ltd company that would pay the Corporation tax on any profits, but anything you get paid by the business you would still be taxed on.