Additional SDLT reclaim if old property sold to a Company

Countist

Hi All,

My friend recently purchased a second home (let's call it the Clapham House), and is renting out her old home (let's call it the Watford House).

She's pondering selling the Watford House to a company set up in her name for other non stamp duty Tax Reasons, but solicitors are telling her she can also *probably* (they won't commit) claim back the additional rate SDLT on the Clapham House because it'll no longer be a second property.

Is this true? If it is true why doesn't everyone do this? 

I do understand she'll have to pay SDLT when transferring the Watford House to the company, but she is aware of this anyway.

If anyone would like to crunch some numbers let's say the Watford House is 350k and the Clapham House is 700k

Thanks in advance if anyone can help!

p00hsticks

Countist said:

I do understand she'll have to pay SDLT when transferring the Watford House to the company, but she is aware of this anyway.

My understanding is that the Company will need to pay SDLT when purchasing to the house. 

But more to the point - how much is she going to sell the house to the company for, and where is the money in the company coming from to enable the company to buy it ? As I understand it when the company comes to sell the property they will pay Capital Gains tax on any increase in price between buying and selling  it, so if she sells it to the company for a low price (if HMRC allows that - it;'s not something I'm familiar with) the the CGT could well amount to much more than the SDLT saved. 

Plus the expense and admin involved in setting up and running a limited company .....

SDLT_Geek

Countist said:

Hi All,

My friend recently purchased a second home (let's call it the Clapham House), and is renting out her old home (let's call it the Watford House).

She's pondering selling the Watford House to a company set up in her name for other non stamp duty Tax Reasons, but solicitors are telling her she can also *probably* (they won't commit) claim back the additional rate SDLT on the Clapham House because it'll no longer be a second property.

Is this true? If it is true why doesn't everyone do this? 

I do understand she'll have to pay SDLT when transferring the Watford House to the company, but she is aware of this anyway.

If anyone would like to crunch some numbers let's say the Watford House is 350k and the Clapham House is 700k

Thanks in advance if anyone can help!

This strategy can work to give an entitlement to recover the 3% surcharge https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09800, but it is not something which would suit everyone.

The company pays SDLT on the market value of the old property including the 3% surcharge.  So on a property worth £350,000 that would be £15,500.  That is less than the 3% of £700K which might be recoverable (£21,000) but there are other factors:

A capital gains tax disposal is made.
The income and future capital gains will be taxed differently.
There is the cost of running a company.
There are perhaps more risks of adverse changes for a company than an individual.

Countist

Thanks both, that's good to know.

She has her own company for work so she's at least somewhat familiar with company related shenanigans so the SDLT question was the main thing,

Re CGT that probably means it makes sense to sell the property at a higher value and pay a little more SDLT...another good point though thanks.

Bookworm105

Countist said:

Re CGT that probably means it makes sense to sell the property at a higher value and pay a little more SDLT...another good point though thanks.

if the company is a close company (<5 directors including her) then, for CGT calculation, the market value will be used, not some (made up) convenient "higher" value.
HMRC saw through people manipulating values for their own benefit when moving things around between themselves and entities they control a long time ago.

Countist

That makes sense, but a market value can still be very subjective (estate agents valuations varied by 50k from memory)

Bookworm105

Countist said:

That makes sense, but a market value can still be very subjective (estate agents valuations varied by 50k from memory)

indeed, but the distinction is you have hard evidence from independent third parties (average of 3 being the norm) to support the figure used
or
you pay a (big) fee to a registered valuer to give a written valuation on the usual understanding that it may need defending in a valuation tribunal (hence use a registered valuer) against a counter figure from HMRC's Valuation Office Agency

user1977

Countist said:

That makes sense, but a market value can still be very subjective (estate agents valuations varied by 50k from memory)

It's not that subjective, they're within well-recognised margins of error. I wouldn't expect a difficulty unless the figures are way off.

Countist

alright thanks a bunch everyone, some really good insights in here