Stamp Duty, Let to buy conundrum

kaninhop

I would like some advice about a purchase of a flat I’d really like to buy. It costs 340k. 
I already own a flat worth 280-300k with @80k remaining to be paid on the mortgage, it is not in a nice area so I think would take a while to sell. 
My current accountant said I should form a limited company and make the flat I already own a let to buy to reduce tax liability. I am not sure her advice is reliable; She seemed unaware that I would have to pay stamp duty to transfer it to a limited company and also capital gains tax when I sell it.

I plan to sell the flat I currently own within the next year or so.

SDLT_Geek

Is the flat you propose to buy in England, so the relevant stamp duty is stamp duty land tax?

Given that your post is headed "let to buy" I expect you have been living in the flat you own, and will move into the flat you intend to buy.  Is that right?

If so, and if you are pretty sure you can complete the sale of the first flat within three years of completing the purchase of the new flat, a strategy to consider is to pay the extra 5% on the £340K purchase (£17,000 does not sound a lot, if you say it quick enough).  That extra 5% could then be reclaimed once you sell the first flat.

That might be preferable in the long run than having a company pay SDLT (again assuming the first flat is in England) on the acquisition of the first flat (if that is worth £300K then that would be an irrecoverable £20,000).

kaninhop

Yes SDLT_Geek, the flat is in England. And yes I have been living in the flat I own and will move into the flat I intend to buy. 
I hope I am not insane to think I should be able to sell a flat in the South East in less than 3 years.
I see the stamp duty on a second property would be £24,000 whereas if it was the next it would be £7,000. So that is a £17,000 difference. Would I get that £17,000 back if I sold within 3 years?

Grumpy_chap

kaninhop said:

I would like some advice about a purchase of a flat I’d really like to buy. It costs 340k. 
I already own a flat worth 280-300k with @80k remaining to be paid on the mortgage, it is not in a nice area so I think would take a while to sell. 
My current accountant said I should form a limited company and make the flat I already own a let to buy to reduce tax liability. I am not sure her advice is reliable; She seemed unaware that I would have to pay stamp duty to transfer it to a limited company and also capital gains tax when I sell it.

I plan to sell the flat I currently own within the next year or so.

Do you live in the flat that you own?

Yes, there will be SDLT to transfer to a Ltd Co.

You will incur no more CGT selling the flat you own to your newly formed Ltd Co. than any other buyer.
The flat within the Ltd Co. will not accrue a CGT liability.  Any increase in value will report via the company balance sheet and result in Corporation Tax.  There may be further taxation arising on withdrawing the funds from the Ltd Co.

SDLT_Geek

kaninhop said:

Yes SDLT_Geek, the flat is in England. And yes I have been living in the flat I own and will move into the flat I intend to buy. 
I hope I am not insane to think I should be able to sell a flat in the South East in less than 3 years.
I see the stamp duty on a second property would be £24,000 whereas if it was the next it would be £7,000. So that is a £17,000 difference. Would I get that £17,000 back if I sold within 3 years?

Yes, as I said, I would expect the extra £17,000 payable on the second property to be recoverable if you sell the first flat within three years.

Keep_pedalling

kaninhop said:

I would like some advice about a purchase of a flat I’d really like to buy. It costs 340k. 
I already own a flat worth 280-300k with @80k remaining to be paid on the mortgage, it is not in a nice area so I think would take a while to sell. 
My current accountant said I should form a limited company and make the flat I already own a let to buy to reduce tax liability. I am not sure her advice is reliable; She seemed unaware that I would have to pay stamp duty to transfer it to a limited company and also capital gains tax when I sell it.

I plan to sell the flat I currently own within the next year or so.

If you plan to sell so soon after moving out what is the point of renting out rather than selling ASAP? Selling if you have sitting tenants is going to be move difficult and you could end up with a tenant who won’t move out or causes serious damage. 

kaninhop

Keep_pedalling the place I already own will take a while to sell and I don't want to miss out on the place I have my eye on.