Buy-to-let tax loophole or just tax evasion..?

BTLLL123

Hi all,

I am a fairly new BTL landlord and I’m contemplating using my limited company to purchase my own (personally owned and only) home to create a BTL and simultaneously facilitate the purchase of my next home. 

Common sense would tell me that it would need to be at market value seeing as, if I were to pay over market value, I would benefit from receiving the additional cash personally without paying income tax on it. 

That said, I would have thought that I would find at least one article explaining why you can’t do that… but nothing! So I wondered if anyone knows what laws and/or tax implications would pertain to this? A breach of the Companies Act I suspect? 

And going back to reality, if anyone has any experience doing the above (at market value), I would be interested to know if there are any specific requirements to be met due to the seller and buyer being connected parties.

Thanks in advance. 

caprikid1

"I am a fairly new BTL landlord and I’m contemplating using my limited company to purchase my own (personally owned and only) home to create a BTL and simultaneously facilitate the purchase of my next home. "

Your LTD company  will need to pay full BTL Stamp duty at the purchase price.

This large sum of money is off putting for most where it's a transfer of this nature.

BTLLL123

Thanks @caprikid1.

The stamp duty would certainly be off-putting, as would be the thought of having to put down an enormous deposit (to make up for the difference between the "purchase price" and a lender's valuation).

I was specifically wondering about the personal benefit of the cash received from the sale. Are there any laws or tax limitations that would actually prevent someone from doing this?

user1977

BTLLL123 said:

I was specifically wondering about the personal benefit of the cash received from the sale. Are there any laws or tax limitations that would actually prevent someone from doing this?

You can pay yourself what you want! Not sure how there's a tax benefit to you making it a higher price though? You don't pay Income Tax on the price you receive by selling a property.

BTLLL123

Thanks @user1977.

The benefit would be that if my limited company paid me, personally, £1m for a property worth £800,000, I would receive £200,000 in cash, which - in theory - I would not have to pay income tax on.

Whereas if I pulled that cash from the business in dividends, it would be subject to income tax. 

user1977

BTLLL123 said:

The benefit would be that if my limited company paid me, personally, £1m for a property worth £800,000, I would receive £200,000 in cash, which - in theory - I would not have to pay income tax on.

Whereas if I pulled that cash from the business in dividends, it would be subject to income tax. 

Ok. I guess there is likely to be some anti-avoidance thing somewhere in the tax legislation to prevent companies buying anything (wouldn't need to be property!) at inflated prices from their shareholders.

caprikid1

"The stamp duty would certainly be off-putting, as would be the thought of having to put down an enormous deposit (to make up for the difference between the "purchase price" and a lender's valuation).

I was specifically wondering about the personal benefit of the cash received from the sale. Are there any laws or tax limitations that would actually prevent someone from doing this?"

Don't forget the higher interest rate of a Company BTL vs Residential..

Mr.Generous

There's always a catch with any "get rich quick" scheme. The penalty tax is usually a good disincentive to any scheme designed purely to avoid tax. But you've also got to get a solicitor and mortgage company to go along with you. So unlikely it would happen. The solicitor will be able to explain the legal complications I expect.

SDLT_Geek

BTLLL123 said:

Thanks @user1977.

The benefit would be that if my limited company paid me, personally, £1m for a property worth £800,000, I would receive £200,000 in cash, which - in theory - I would not have to pay income tax on.

Whereas if I pulled that cash from the business in dividends, it would be subject to income tax. 

As others have said, SDLT is a big hit here, with a market value charge on the company and the extra 3% applying.  If, as your post suggests, the value of the property is over £500,000, then the penal 15% flat rate of SDLT could apply.

The company paying extra money is likely to be unlawful.  If it can be done at all, then I would expect the extra to be taxed as a distribution / dividend by the company: https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm15205

artyboy

No idea the legalities of this, but would have thought that a smallish premium over market price is hardly likely to get noticed by anyone...

theartfullodger

Hopefully (and probably) any tax advantages from what you are considering will be shut down in the next year or so.

It's unfair, not decent, un-British.

Best wishes to all.