Updating post from Reddit.
I am exploring the possibility of setting up a Ltd company for my property which I currently let out in my name.
The house doesn't have a mortgage, and I have been letting out the property to tenants for the last year.
I would be grateful for information on how to transfer the property to the Ltd company. Would it be possible to loan the property at market value to avoid paying tax now?
Thanks
You are going to pay tax, that is unavoidable. The goal is to mimimise it.
I have done this three times, I sold two in 2017 and just completed on a third two weeks ago.
All three properties were mortgage free but I mortgaged two of them to cover that costs and release equity, are you intending to mortgage, it is more complex if you do?
I wasn't planning on remortgaging, I was hoping that being mortgage free would simplify the process.
The purpose of this is to avoid paying higher rate tax on my rental income, and I plan on living in the property again in ~ 3 years.
Please can you let me know how you would proceed here - FYI this is the only property I own.
Thanks
So you’d want to move it out the Ltd Co in 3 years to live in it?
Yes, if this is an option.
Both transaction would occur stamp duty. How much is the property worth?
£280k
So you’re looking at £18,000 stamp duty to put it into the Ltd Co. £4,000 stamp duty to take it out of the Ltd Co. Plus CGT. Plus fees. So it’s hardly going to be worth it. Just gotta take the hit with the income tax for a few years unfortunately.
I very much doubt that the income tax saving would outweigh CGT, stamp duty and fees that would arise from two transfers in the space of four years. Not to mention the hassle factor.
Thank you all for your advice, I wasn't aware that this would be so complicated!
I will scrap this idea.
Are you married to a base rste tax payer?
Just rent the property to you ltd business for a nominal price, like £1 a month or something.
If moving in again. Leave it all alone and just pay the tax.
No mortgage is easier but you may be missing out on an opportunity to release equity.
First get an accountant, ask them to help set up the LTD. Your looking at around £1k a year to do company filing but it is 100% claimable. I found mine via an NRLA recommendation
Then find a conveyancing solicitor, ideally one who will represent both parties, that’s you as the seller and the LTD as the buyer
They don’t need to be locals try https://solicitors.lawsociety.org.uk/ and call a few until you find one you are happy and will cover both sides.
Costs will be around £3k but it may be cheaper because no mortgage. A property accountant may recommend one but do not be obliged to take it.
Ask the accountant to work out CGT on the old property,
The convenancing solicitor will tell you what SDLT to pay:
It could be done on a couple of weeks.
I think 3k is punchy for the transaction, There is very little work as they already own the property, it is an TR1, SDLT1, AP1. I would be looking for quotes 1k and under.
How much is it worth? The stamp duty (with the lovely 5% on top) could knacker all your plans.
Do the maths and see if it's really worth it for 3 years.
The company buys it from you. Pays the appropriate stamp duty and you personally pay any capital gains tax.
Work your figures carefully as it really may not be worth the effort.
You still going to pay tax on the income as you’ll pay corporation tax and income tax once pull money out of the company.
You’ll also have to pay CGT and SDLT.
Seems like a lot of trouble for only 3yr of benefit. Have you done a full cost benefit analysis? If you’re going to rent for 5+ yrs I imagine it becomes more worthwhile.
Wait! Why?