Sale of Personal BTL Property to Ltd Company

brucett

Hi, I currently have a BTL property (flat) in my own name that I am looking to sell to my limited company so that the property is fully in my ltd company name. This is for a multitude of reasons.

The Ltd company has sufficient funds available for the deposit and 5% SDLT that is required to purchase property. The rest of the funds required to complete the purchase of the property at market the rate will be via Ltd company mortgage.

I appreciate that any personal value gained through the property since I purchased back in 2014 will be subject to capital gains, which is minimal.

Are there any pitfalls that I need to consider that I may have missed? Can the sale of the property all be undertaken by one solicitor acting on behalf of myself and the Ltd company?

anselld

The main pitfall seems to be burning a lot of cash for little or no benefit.   What are the multitude of reasons which make you think this is a good idea?

SDLT_Geek

brucett said:

Hi, I currently have a BTL property (flat) in my own name that I am looking to sell to my limited company so that the property is fully in my ltd company name. This is for a multitude of reasons.

The Ltd company has sufficient funds available for the deposit and 5% SDLT that is required to purchase property. The rest of the funds required to complete the purchase of the property at market the rate will be via Ltd company mortgage.

I appreciate that any personal value gained through the property since I purchased back in 2014 will be subject to capital gains, which is minimal.

Are there any pitfalls that I need to consider that I may have missed? Can the sale of the property all be undertaken by one solicitor acting on behalf of myself and the Ltd company?

If you want the same solicitor to act for the mortgage lender as well as the company, then I would not expect them to be able to act for you as well.

There are some extra SDLT (and ATED) issues if the property is worth over £500K.  Is that the case?

brucett

Hi anselld, there are two main reasons:

First reason:

It is simply bumping my personal tax bracket up for little benefit.

Example from the last tax year;
£11k received in rent, £3.7k expenses (service charge, insurance etc..), therefore £7.3k taxable income at 20% = £1.46k
The BTL mortgage cost is £5.1k.

Therefore, simply speaking once high rate tax is applied, i'm actually making minimal profit:
i.e. £11k - £3.7k - £1.46k - £5.1k = £740 profit.

And for that £740 profit, my total income for the tax year has been bumped up by £7.3k.

At least if it sits in a Ltd company, the expenses and the mortgage can be offset against the rent for a true profit/loss.
i.e. £11k - £3.7k - £5.1k = £2.2k profit, taxed at 25% = £1650 company profit. (theoretical example as I appreciate a Ltd company BTL mortgage rate will be slightly higher). 

Even if I pay myself all the £1650 'profit' as dividends at the high rate, this would give me approx £1100 compared to the £740 without increasing my overall tax.

This means for other items such as the child allowance, it will help keep myself under the £60k bracket.

Second Reason:

I have approximately £80k of equity in the property which I would like to use to help buy our next 'main residence'. Therefore to get this equity out the flat, there are 3 options:
- Sell on the open market and lose the BTL
- Sell to my Ltd company as previously mentioned which has the funds to be able to proceed with the purchase. 
- Remortgage the BTL property as it is to take out the equity, which when you do the figures again (as above) but with a higher mortgage rate, it makes even less sense as the property will be making a considerable loss whilst still increasing my tax bracket.

Hopefully this summarises the situation.

subjecttocontract

Things to consider (pitfalls):
* Extra SDLT.
* Ltd Company Mortgage usually at a higher interest rate.
* Higher cost of legal fees.
* Lot of expense for not a lot of gain.

Bookworm105

you have identified the main issues
the rest is down to detailed maths to calculate the payback period (including personal CGT) and a finger in the air in respect of future taxation changes on personal rental property v company incl. ongoing running costs 

brucett

SDLT_Geek said:

brucett said:

Hi, I currently have a BTL property (flat) in my own name that I am looking to sell to my limited company so that the property is fully in my ltd company name. This is for a multitude of reasons.

The Ltd company has sufficient funds available for the deposit and 5% SDLT that is required to purchase property. The rest of the funds required to complete the purchase of the property at market the rate will be via Ltd company mortgage.

I appreciate that any personal value gained through the property since I purchased back in 2014 will be subject to capital gains, which is minimal.

Are there any pitfalls that I need to consider that I may have missed? Can the sale of the property all be undertaken by one solicitor acting on behalf of myself and the Ltd company?

If you want the same solicitor to act for the mortgage lender as well as the company, then I would not expect them to be able to act for you as well.

There are some extra SDLT (and ATED) issues if the property is worth over £500K.  Is that the case?

No the property is only worth between £160-180k. So definitely not an issue. Thanks for the info re solicitors