So what does an aging small landlord do?

by Readers Question

11:16 AM, 20th November 2017
About 4 years ago

So what does an aging small landlord do?

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So what does an aging small landlord do?

I’m a small landlord, 4 BTL properties acquired over the last 13 years. 3 are in a limited company (no mortgages), 1 is owned privately. The privately owned one was re-mortgaged to fund the last property purchased, which I managed to slide into the company just prior to all the changes.

My original intention was to move the privately owned one into the company once the rather excellent mortgage deal ended (June 2018). Unfortunately 2 things now work against me, first, the 3% stamp duty, second the somewhat rapid and unexpected rise in value giving a capital gain of some £100,000.

At 60, I’m retired on medical grounds and I don’t spend 20 hours a week on property management/maint.

I am considering living outside the UK permanently due to my partner being a Chinese national and HMG’s process and requirements for a permanent stay visa being an absurd, illicit revenue source.

My accountants are very good, but may not be as inventive as some other folks within 118.

There seems to be a number of beneficial options for the more invested 118 member, but try as I might I do not seem to be able to identify a smart, legal way forward.

Any ideas, guidance welcome.

Tim

Comments

sam

22:55 PM, 22nd November 2017
About 4 years ago

Reply to the comment left by Mark Alexander at 22/11/2017 - 21:07
'Unless the company already owes money to its Directors I cannot see how this could work' : I think thats what he said - 'Yes, the value of the property in the company, at the time it was moved into the company, is owed to me as a capitalisation debt. So after corporation tax any monies come to me free of personal tax.'

Mark Alexander

23:19 PM, 22nd November 2017
About 4 years ago

Reply to the comment left by sam at 22/11/2017 - 22:55
If you had transferred the property to the company in exchange for debt as opposed to shares though you'd have had to have paid CGT on any gains at the point of transfer.

Most landlords don't want to do that, they prefer to exchange equity for shares and roll their capital gains into those shares using incorporation relief under section 162 TCGA.

If you have equity but no capital gains at the point of transferring the properties into the company then that's the only basis upon which I could see your suggestion making any financial sense.

Mark Alexander

23:42 PM, 22nd November 2017
About 4 years ago

Reply to the comment left by sam at 22/11/2017 - 22:55
Sam

I came into this thread quite late in order to respond to a question about BICT. I hadn't read all of the comments prior to responding to yours.

I have now done so, and see that Tim has may indeed have transferred his unencumbered properties to his company in exchange for a Directors Loan. If that was the case, I now concur with your suggestion.

I just hope Tim accounted for SDLT and CGT when he transferred the other three properties. I also hope Tim correctly crunched all the other numbers to consider the financial viability of what he has done. What were the costs in comparison to the savings for example? Also, it is unclear whether Tim would even have been affected by the restrictions on finance cost relief.

sam

6:21 AM, 23rd November 2017
About 4 years ago

‘I just hope....’
Quite. But what’s done cannot b undone. We do not know when properties transferred nor the value/gain of each.
Also a different issue fr what I think Tim is asking here. I wud let sleeping dogs lie.
Life has got so complicated here we all need a PhD in everything just to navigate thru our everyday affairs without breaking some rules/law albeit however unintentionally.

sam

6:30 AM, 23rd November 2017
About 4 years ago

Mark
I did exactly what Tim did - issue debt instead of shares - to cap my equity while passing future growth to the next generation (give them shares in a company that has effectively no book value) n live off repayment of debt from the company for my remaining years.
Care to comment on the pros n cons ?

Mark Alexander

7:53 AM, 23rd November 2017
About 4 years ago

Reply to the comment left by sam at 23/11/2017 - 06:30
Hi Sam

The alternative would have been a partnership.

Pros to that are flexible allocation of rental profits to optimise use of each partners tax bands and no CGT or Stamp Duty to set up if well planned.

Cons are that if the partners are higher rate tax payers, s24 will apply if the business has finance costs.

The above is not a full analysis or advice.

Tim Rogers

14:46 PM, 23rd November 2017
About 4 years ago

Reply to the comment left by Mark Alexander at 22/11/2017 - 21:07
That is the exact method my accountant decided to use.
The company owes me individually the value of the properties when they were transferred into the company. At that time they were debt free. Once expenses and corporation tax is paid the remainder is deemed as being part of the repayment of the debt.

Given the initial property value and the company fiscal remainder each year this realises to about 20 years before the debt is repaid in full. I will not be around that long.

Mark Alexander

14:51 PM, 23rd November 2017
About 4 years ago

Reply to the comment left by Tim Rogers at 23/11/2017 - 14:46
How much did it cost you in CGT and Stamp Duty though?

Tim Rogers

15:30 PM, 23rd November 2017
About 4 years ago

Not that it addresses my original question, but to clarify as so many seem to be concerned. The first 2 properties in the company were purchased for cash in the company name.
I provided the funding. The 3rd property was purchased in my name and on a btl mortgage.

2 years later all the rules started changing and the Mortgage deal was coming to an end. Given that at that time personal BTL deals were much better than company ones I decided to remortgage the other personal BTL property, (which I have had for 13 years), and thus funded the paying off of the 3rd property. The Capital Gains was limited so when it was transferred there was no tax, I did get hit with the lesser stamp duty.

All the company properties have a charge registered against them at land registry so that in the event of sale any remaining debt must be paid off.

I am fortunate that I have next generation folks I completely trust, so the above is just a belt & braces. From the start, the company had 1000 shares and 3 shareholders, I own 2 shares, the rest are with the next generation. Only I receive a revenue stream, only I deal with company issues at the moment.

Before I start to deal with pension pots, savings and the like, all of which will accrue tax, I wanted to get the 4th BTL into the company and away from IHT.

So far the discussion has been interesting. I am fully aware that I do not fit into any normal cubbyhole. I'm not looking to grow the business, I am seeking to clear all debts, I do not wish to leave a big pile of issues behind me.

Figures (approx).
The 3 company BTL entered the company worth £450,000
The personal BTL is now worth £240,000
Finance raised to fund all this £265,000 which splits as follows
£65,000 BTL mortgage
£100,000 Company loan
£100,000 Personal property offset mortgage

Final point, the remaining BTL in my name has been occupied by the same folks from day one, some 14 years now. I have known my main tenant since childhood, some 30+ years. The property was purchased specifically to suit her disabled needs and I have no intention of removing my tenant or selling the property other than to my own company.

T

tony

17:10 PM, 23rd November 2017
About 4 years ago

in my previous question as a sole T, re BICT and IHT in which i asked if the transfer of beneficial interest could be reversed at any point prior to incorporation and with properties being then still in own name how to avoid a huge IHT bill and would there be any point transferring the beneficial interest to an(my) offshore rather than UK co for the benefit of extraction of profit and would it be worth re-financing prior to BICT to possibly loan to BICT , my aim is to enjoy rental income and pass props + income on to children,

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