Tax advantages selling house to your own private company?

solidpro

Hi

I wholly own a limited company that owns property and rents it out. It's not my main job. We do this because we were advised it was advantageous many years ago to be a small landlord through a ltd company rather than owning rental property personally. No CTG, only (low, then) CT, and interest on mortgages/legal fees/repairs was deducatable from that CT.

However we currently live in a house that we outright own but is an ideal rental property and in a few years we would like to keep and rent out, but move somewhere else. It's worth about £500k

In our current ltd company situation, the obvious thing to do is director's loan the ltd company £500k, have it buy our house, pay ourselves and then use the money to buy something else. Problem is stamp duty would be £27,500 just to sell it to ourselves (plus a few K in legal fees).

So question is - with the increases in CT coming, with the cost of Stamp Duty only to move the property from ours to the ltd companies, is it worth it or do we just keep it as a second home and rent it out the old fashioned way (i.e. personally, and not through the ltd company).

cheers

SDLT_Geek

solidpro said:

Hi

I wholly own a limited company that owns property and rents it out. It's not my main job. We do this because we were advised it was advantageous many years ago to be a small landlord through a ltd company rather than owning rental property personally. No CTG, only (low, then) CT, and interest on mortgages/legal fees/repairs was deducatable from that CT.

However we currently live in a house that we outright own but is an ideal rental property and in a few years we would like to keep and rent out, but move somewhere else. It's worth about £500k

In our current ltd company situation, the obvious thing to do is director's loan the ltd company £500k, have it buy our house, pay ourselves and then use the money to buy something else. Problem is stamp duty would be £27,500 just to sell it to ourselves (plus a few K in legal fees).

So question is - with the increases in CT coming, with the cost of Stamp Duty only to move the property from ours to the ltd companies, is it worth it or do we just keep it as a second home and rent it out the old fashioned way (i.e. personally, and not through the ltd company).

cheers

If the property is worth over £500K then your Stamp Duty Land Tax (assuming the property is in England) will be much higher.  It will be over £75,000.  You need to research the "higher rate" of 15% https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09500 and also look into the Annual Tax on Enveloped Dwellings (ATED).

solidpro

Currently worth around £425k.... Isn't the higher rate at £925k?

SDLT_Geek

solidpro said:

Currently worth around £425k.... Isn't the higher rate at £925k?

That is a big drop from around £500K a few hours ago!! 

I was referring you to the 15% flat rate of SDLT for companies buying dwellings for over £500,000, but maybe that is not a concern, given what you say now about the value of the property.

solidpro

Looking to do this in about 5 years. If there is somewhat of a return to normality in 5 years it will be "about £500k" as I originally said.

user1977

solidpro said:

Looking to do this in about 5 years. If there is somewhat of a return to normality in 5 years it will be "about £500k" as I originally said.

Fair enough, but the tax rules will (probably) be different in 5 years too...

solidpro

Well yes. The way it's going we're not property investors anymore due to all the issues introduced to force out the smaller landlords, but we are looking at income streams for retirement and our goal is to own 2 decent rentals alongside a whole raft of other investments and savings and the house we live in is ideal for that.

p00hsticks

Didn;t you already ask this question ?

https://forums.moneysavingexpert.com/discussion/6323661/best-way-to-transfer-a-private-property-ownership-to-my-ltd-company#latest

solidpro

Didn't get any meaningful responses then either.

anselld

The question is explored at length in "Using a Property Company to Save Tax" by Carl Bayley.  The bottom line is that fairly much the only scenario where it makes sense is if you are a high rate taxpayer *and* you are wishing to retain profit within the company in the long term to grow a portfolio.

If you are just seeking to hold only a couple of properties to generate ongoing retirement income then it will be more cost effective to own personally.  Any initial savings in Company ownership are eaten up by the tax on extracting profits from the business.

It is not clear why you need to know five years in advance.  Given both options are available then you can just evaluate both with the rules in place at that time which may be completely differnt to today in either direction.