Selling my property to a limited company

Harryvon

Hello all, 

I currently own a flat in Scotland and due to a substantial drop in prices in the area, I am now in negative equity by about 5k. 

I live in England with my partner in her house which she owns. We would like to sell it and buy a bigger house down here in England but with the drop in value of my flat, I’m not really able to sell it. 

Without selling both the house in England, and the flat in Scotland we would have to pay the ADS supplement of 8%. To avoid this I would like to sell the flat to a limited company and keep letting it out until (hopefully) the value goes back up. 

With that being said, does the ADS even apply when you’re not buying the second home in Scotland? Although even if it didn’t I would likely need a 25% deposit as it would be a second mortgage? 

Would it even be possible to let it out when it’s in negative equity? The company could buy it for the value of the current mortgage maybe? Then let it out for 2 years where you don’t need a buy to let mortgage and 25% equity in the home. Is that even an option when buying through a limited company? 

Any advice would be appreciated.

Thanks in advance 

El_Torro

Putting your property in a limited company is not that simple. It does make sense for some people though. 

Some of the things to consider are Capital Gains Tax and Stamp Duty. Since the property hasn't risen in value you don't need to worry about CGT. The limited company still needs to pay Stamp Duty though. So you need to factor this in when considering whether it's worth doing. 

If you are considering this it's worth looking into the pros and cons of having a BTL in a limited company. Generally speaking it doesn't make sense to do if you plan to wind up the company after a couple of years. 

poseidon1

Harryvon said:

Hello all, 

I currently own a flat in Scotland and due to a substantial drop in prices in the area, I am now in negative equity by about 5k. 

I live in England with my partner in her house which she owns. We would like to sell it and buy a bigger house down here in England but with the drop in value of my flat, I’m not really able to sell it. 

Without selling both the house in England, and the flat in Scotland we would have to pay the ADS supplement of 8%. To avoid this I would like to sell the flat to a limited company and keep letting it out until (hopefully) the value goes back up. 

With that being said, does the ADS even apply when you’re not buying the second home in Scotland? Although even if it didn’t I would likely need a 25% deposit as it would be a second mortgage? 

Would it even be possible to let it out when it’s in negative equity? The company could buy it for the value of the current mortgage maybe? Then let it out for 2 years where you don’t need a buy to let mortgage and 25% equity in the home. Is that even an option when buying through a limited company? 

Any advice would be appreciated.

Thanks in advance 

I think you seem to be asking if you create a UK company to 'buy ' your Scottish Property from yourself, will that corporate ownership take that property out of consideration for the purposes of 2nd property English SDLT, for the proposed joint purchase of a replacement property between you  and your partner.

Certainly corporate ownership of a residential property does not appear to trigger 2nd property SDLT in the circumstance you outline.

However, whether this 'loophole' makes your proposal viable seems most unlikely bearing in mind you state you are already in negative equity with regard to the Scottish property.

The company could not get a BTL mortgage for anything like the current mortgage you have outstanding. A basic Google search should have informed you that BTL mortgages are no higher than 75% of the market value of the property so you would have to make up the monetary 25% difference  as well as additional Scottish SDLT on the company purchase, which presumably would make no financial sense in terms of what you are trying to achieve.

Seems to me you either sell the Scottish property at a loss ( in the open market ) and swallow the negative equity as best you can, or you keep the property in personal ownership and  accept the possibilty your future English purchase with your partner will trigger English 2nd property SDLT.  However if you are married note the HMRC link to Bookworm's post this may offer a route to avoid English 2nd property sdlt if your circumstances fit the criteria.

In any event forget about corporate ownership of the Scottish property - its a none starter.

sheramber

If your partner buys a new main residence in her name only there will not be any additional stamp duty as she is replacing her main residence.

Any btl  mortgage  the limited company could get would be based on the current value of the flat, not on the amount of the outstanding mortgage. 

What is the value of the flat?

How much is the outstanding mortgage? 

Bookworm105

I don't accept the PC use of the word "partner". For tax purposes one needs to know if the "partners" are legally married or not?

if you are married then selling her property and purchasing a new main residence in England will not be at higher rate SDLT even if you still own the Scottish property in your own name, see example 1 !
SDLTM09810 - SDLT - higher rates for additional dwellings: Condition D - further examples - HMRC internal manual - GOV.UK

the rest of your question is then irrelevant.

Alternatively,  if you are not married, then one or the other of the following will apply

a) if purchasing the new English property in joint names then the new property would be at higher rate SDLT as you (personally) would be purchasing an additional property. The fact it will be your main home is irrelevant as you don't own the one you are living in at the moment, ie you are not "replacing" (selling) your home. See example 2 
The ongoing existence of the Scottish property in your name therefore would be the main problem, and using a Ltd to try and get round that would be a very counterproductive option as others have explained.

b) if purchased in her name only then the higher rate SDLT would not apply as she would be replacing her own main home. 

RAS

Perhaps just accept the £5k shortfall. Is that more or less than the additional SDLT you'd have to pay to buy the joint property in England? Probably less than the SDLT penalty?

MEM62

What chance do you think that a newly-formed LTD company with no trading history, no assets and no deposit will be given a mortgage?  Slim, I think.

Sell the flat and swallow the £5K loss.  It will be far cheaper in the longer term.      

silvercar

MEM62 said:

What chance do you think that a newly-formed LTD company with no trading history, no assets and no deposit will be given a mortgage?  Slim, I think.

Sell the flat and swallow the £5K loss.  It will be far cheaper in the longer term.      

Easier if the director gives a personal guarantee.

MEM62

silvercar said:

MEM62 said:

What chance do you think that a newly-formed LTD company with no trading history, no assets and no deposit will be given a mortgage?  Slim, I think.

Sell the flat and swallow the £5K loss.  It will be far cheaper in the longer term.      

Easier if the director gives a personal guarantee.

I am not sure the OP would be in a position to do so.  

kerelyte

I got question- which is a bit off the subject...
I am on DMP.Lets say, i form new limited company and sell house (that i own outright and debt collection agencies are not aware that i own it ) to the company.
What are the odds that DCA would be able to find out about it and issue CCJ on the property.Since the company owns the property ,i would be a director of a company with personal debt problems.

Olinda99

one obvious observation is that after the sale to the company you would be left with the sale proceeds in cash which your creditors could come after.

Unless you were thinking of selling it for £1 or something ?