Buying an inherited house via a limited company with a mortgage to buy siblings out

desjazz

Hi,

I placed an original post here that outlines the situation I'm in. The short of it is I am the Executor for my late mother's estate and want to buy my siblings out of the inherited house but via a company to avoid the 40% tax I would face due to being over the higher tax threshold earnings from my day job (replacing it with corporation rates). I'm familiar & comfortable with being a landlord so that isn't a concern in terms of the extra responsibilities that entails.

I spoke to a mortgage advisor and he said that all of the providers he knows would only provide a mortgage if the company owns the house prior to requesting it. I'm wondering how this can be done legally so that everything is above board for everyone to avoid complications in future. Does anyone here know what I can do here to get this done?

The other question I have is about setting the ltd company up... I do already have a ltd company that I could change the purpose of but I was told by an estate agent that it might be possible to add my daughter (currently a minor) to the company as an appointee such that when it comes to inheritance in future, this would make it easier and tax-efficient although I'm not totally sure of the potential benefit of doing this. He said that the type of share type that they were listed as owning could help here (A or B shares). Like I say, I can't claim to know the validity of this idea but I'm trying to find out. The issue with this idea is that the mortgage advisor said that the aforementioned lenders would be unlikely to provide a mortgage if the company had a child listed as part of it. Does anyone know about whether this is possible or sensible?

The only post I've seen similar to this was this but it didn't quite cover the same scenario as I'm in so hopefully, someone can provide some guidance here.

There are a couple of other things to highlight here:

1. The solicitors I had been speaking to previously gave a suggestion that I'd need two different solicitor firms to handle this (one for me and one to act on my siblings' behalf). I think that sounds right but when I approached them with the above, they stated they were too busy to actually proceed on my behalf (possibly due to the complicated scenario I posed, although this can't be that irregular in buy-to-let buyouts)

2. I'm in Manchester and the council had recently started charging double-council tax on furnished properties and so I'm keen to see if this can be concluded before that happens (1st April), so there's a bit of a rush to get this sorted and my family are likely onboard with finding a way quickly.

Thanks in advance for any help anyone can give.

D

Hoenir

desjazz said:

I spoke to a mortgage advisor and he said that all of the providers he knows would only provide a mortgage if the company owns the house prior to requesting it. 

Is the complication that your deposit is tied into the property and that the property currently forms part of the Estate ? 

With regards to share structures and tax speak to an accountant so that you get the advice suitable for your objectives. 

desjazz

Hi @Hoenir, 

No, I’d pay the deposit from funds outside of the estate if needed. 

Thanks on the accountant suggestion - that makes sense and I’m doing that also. 

silvercar

I wouldn’t be seeking advice from an estate agent on the subject or minors as appointees to avoid future inheritance tax! In any case, you can always change directors at a later date.

silvercar

“ I spoke to a mortgage advisor and he said that all of the providers he knows would only provide a mortgage if the company owns the house prior to requesting it.”

If the above is true, how do companies ever buy properties?

Changing the purpose of a company is easy. As the company is a separate entity to yourself, the company would be buying the property from the estate, the estate then distributes the funds according to the will. You would probably need to make a loan to the company so the company can pay the deposit on the property and the rest would come from a the company taking a mortgage. Any mortgage lender may well require you to offer a personal guarantee for the company’s mortgage. None of this is impossible, or even that difficult in the hands of people who know what they are doing. Presumably you already have an accountant that deals with your company’s accounts? You then need to find the mortgage, easiest would be to ask whoever you currently have the company’s bank account with, if not search online or use a broker that deals with company mortgages. Generally the rate is slightly higher than personal mortgages.

desjazz

I wouldn’t be seeking advice from an estate agent on the subject or minors as appointees to avoid future inheritance tax! In any case, you can always change directors at a later date. 

Yes, I wasn’t seeking advice from him but the Estate Agent mentioned he’d heard about this when doing an inspection to work out the potential rental incomings. I will pick that query up with an Accountant. 

If the above is true, how do companies ever buy properties?

I was thinking that. Clearly he wasn’t up to speed on the process in reality.

I’ll speak to a suitable Accountant as my current one hasn’t gone into much detail on this apart from saying that letting through a company will be straightforward from his point of view. 

I’m aware of there being an option to setup a company as an SPV for this purpose but I can ask whether changing the purpose of the current company to one of these would make sense or not. 

kingstreet

 "it might be possible to add my daughter (currently a minor) to the company as an appointee"

Don't do it. One of our clients decided to add his student son to his SPV and it made it practically impossible to raise mortgages as most lenders insist on all shareholders being mortgage applicants and many restricting min age to 25.

desjazz

This sounds like it might ruin my plans for IHT/legacy planning but I’ll ask an Accountant what else can be done here. Today I briefly read about trusts being added as a company shareholder as a way to possibly help with IHT but again, this will be something I’ll speak with an accountant about to check it isn’t all a pipe dream. 

MWT

desjazz said:

Today I briefly read about trusts being added as a company shareholder as a way to possibly help with IHT but again, this will be something I’ll speak with an accountant about to check it isn’t all a pipe dream. 

Talk to a good mortgage broker on that point as well...

There are many structures that may be tax efficient or may help with IHT etc. that are entirely legal, but that doesn't mean that lenders are going to want to lend...

ACG

desjazz said:

This sounds like it might ruin my plans for IHT/legacy planning but I’ll ask an Accountant what else can be done here. Today I briefly read about trusts being added as a company shareholder as a way to possibly help with IHT but again, this will be something I’ll speak with an accountant about to check it isn’t all a pipe dream. 

Its not just an accountant, you need a good broker with experience in this sort of thing. 
Whilst it might be possible to do certain things via an accountant and private mortgages etc, its not necessarily possible through normal mortgage lenders. I remember once having an enquiry involving a trust. I was still a relatively new broker at the time, everyone told me it could not be done but I carried on and put a lot of time into it... only to find I could not find any lenders.