Confusion over Higher Rate Land Tax

Newheight13

Hi,

If we where to rent out our current residence valued at 220k and purchase a main residential property at 400k, my understanding is we would pay higher land tax on our residential property and not the BTL?  So it would have worked out more tax land tax efficient if we purchased them in the opposite order? Is there any way around this?

Thanks 

_Penny_Dreadful

Newheight13 said:

Hi,

If we where to rent out our current residence valued at 220k and purchase a main residential property at 400k, my understanding is we would pay higher land tax on our residential property and not the BTL?  So it would have worked out more tax land tax efficient if we purchased them in the opposite order? Is there any way around this?

Thanks 

Correct, you pay SDLT when you purchase a property and it’s the £400k property you’ll be purchasing. The higher rate of SDLT is for the purchase of additional residential properties, it is not specifically a tax on BTL properties. Your £400k purchase is subject to the higher rate because you’re purchasing an additional property. 

I see from your other thread you’re asking about setting up a limited company for letting property. If you were to sell your current home to a limited company then the higher rate would not apply to the £400k purchase because you personally would not be buying an additional property. However, the sale to the limited company would attract the higher rate of SDLT. 

Would the £220k property make a good rental property and does it make financial sense to keep hold of it or would your money make better returns for less hassle elsewhere? 

Newheight13

Thank you for you response there. So could I sell it to my own LTD company, resulting in a higher rate of land tax on 220k instead on the new residential purchase of 400k? Could I sell it to my LTD company for a £1 in theory?! 

It was purchased for 132k and the letting  agent said it will easily generate 1100 PCM and go in a week of letting, which I know it will from the other flats next door achieving the same thing. So it’s 70k profit after work we have done on it from when we purchased it 2 years ago towards our next move and the BTL releasing 50k equity towards next move. Seems a waste of a BTL opportunity if we sell? 

anselld

Newheight13 said:

Thank you for you response there. So could I sell it to my own LTD company, resulting in a higher rate of land tax on 220k instead on the new residential purchase of 400k? Could I sell it to my LTD company for a £1 in theory?! 

It was purchased for 132k and the letting  agent said it will easily generate 1100 PCM and go in a week of letting, which I know it will from the other flats next door achieving the same thing. So it’s 70k profit after work we have done on it from when we purchased it 2 years ago towards our next move and the BTL releasing 50k equity towards next move. Seems a waste of a BTL opportunity if we sell? 

You cannot sell undervalue to a connected Company to avoid SDLT.  It would be considered a transfer at market value for tax purposes.  However, you would still save by paying the higher SDLT on 220k rather than £400k.