Complex small portfolio tax situation?

by Readers Question

11:12 AM, 19th June 2017
About A year ago

Complex small portfolio tax situation?

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Complex small portfolio tax situation?

We have a particularly complex situation even though we have only two rentals. The timeline is important so I am setting this out first.

2002 – I purchased a flat to live in for £60K
2005 – My partner moved in (not married at this time)
2008 – We moved out to a rented house (for school reasons) and let the flat out.
2012 – we jointly purchased our current house for £250K (in poor condition)
2015 – we jointly purchased a holiday let in Florida for $159K with a $101K mortgage

The rental flat is currently worth £140K
The US house $180K
Our main residence – £365K

I am higher rate tax payer
My wife is not a tax payer

In the short term the obvious tax efficiency move appears to be transfer the rental flat to my wife, but I want to keep the same mortgage (still in my name only but very cheap). I have no concerns over trust or relationship issues.

The bigger question comes in around 24 months. We want to move to a larger house, budget of £600K but the extra £18K for higher rate SDLT is not a pleasant thought. As owning both the rental flat and the US property would mean the higher rate SDLT we not sure how to best organise this.

We have the benefit of PRR and Letting Relief if we transfer the rental flat to a limited co. The SDLT would be minimal if not avoidable.

If the rentals were both UK I would be looking further at incorporation, but I am not sure this works for us with the US property.

We may expand our rental portfolio later on.

Any input greatly appreciated.

Nick



Comments

Neil Patterson

11:19 AM, 19th June 2017
About A year ago

Hi Nick,

I will have a go at the SDLT question, but I will need Mark's help with the others.

If you sell your main residence and purchase another main residence then you do not pay the additional 3% SDLT. You are also able to claim back the additional SDLT paid if the transactions are not simultaneous and you sell the previous main residence up to 3 years later.

This is only if you sell your actual main residence though and not a BTL property.

Nicholas Dixon

14:42 PM, 19th June 2017
About A year ago

Thanks Neil,

That clarification is a relief (no pun intended).

Mark Alexander

16:55 PM, 19th June 2017
About A year ago

Hi Nick

The best solution for the existing UK rental property is a combination of Declaration of Trust and forming a partnership - our eBook on this subject is available for £5.99 via the link below.

https://www.property118.com/setting-property-partnership/99537/

With regards to your current home, either you could sell this on the open market (no CGT or SDLT consequences to you), or you could sell it to your own Limited Company (no CGT but SDLT would be payable), or you could refinance as much equity as possible out now, then transfer the property into the partnership and let it out when you move to your new home. The latter option would result in you having to pay SDLT on your new home though.

I cannot advise you on the US property.
.

Nicholas Dixon

18:02 PM, 19th June 2017
About A year ago

Thanks Mark,

Why do you suggest a partnership as opposed to just "gifting" it to my wife? I understand the cost of this is only £250.

Regards,

Nick

Mark Alexander

18:08 PM, 19th June 2017
About A year ago

Reply to the comment left by "Nicholas Dixon" at "19/06/2017 - 18:02":

Same price either way but the partnership option is also more SDLT efficient if there is a mortgage and you want to retain the property and the existing mortgage for letting but allocate profits to your wife.

For £5.99 the eBook explains all.
.

Nicholas Dixon

18:47 PM, 19th June 2017
About A year ago

Thanks Mark,

A very useful guide. How do I instruct you to get the Declaration of Trust done?

I will get the ball rolling on the partnership forms.

Mark Alexander

19:17 PM, 19th June 2017
About A year ago

Reply to the comment left by "Nicholas Dixon" at "19/06/2017 - 18:47":

Hi Nicholas

Please email the following to mark@property118.com

1) Full address and postcode of the property
2) Scanned copy passport or driving licence as proof of identity for yourself and your wife
3) Scanned copy utility bill or bank statement showing the home address of you and your wife (must be dated within the last three months.
4) Name, address and occupation of the person who will act as witness. This does not have to be a professional witness (e.g. Doctor, Police Officer or Solicitor) but cannot be an immediate family member.

On receipt of the above we will send you an invoice. On receipt of payment the documents will be emailed to you in PDF format within two working days.

Thank you for your compliments regarding the eBook by the way.

Regards

Mark
.

Puzzler

16:11 PM, 24th June 2017
About A year ago

I think the sale and purchase now have to occur within 18 months not 3 years?


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