Difficulties remortgaging due to higher interest rates affecting lenders affordability criteria

Difficulties remortgaging due to higher interest rates affecting lenders affordability criteria

9:00 AM, 28th May 2023, About A year ago 14

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Many landlords are reporting that it has become increasingly difficult to remortgage as a result of higher interest rates affecting lenders’ affordability calculations.

Last week I spoke to one landlord whose mortgage interest is now greater than his gross rental income, even though the LTV across his whole portfolio is only 54%.

This is becoming an increasing problem for landlords who are coming out of low fixed rates and moving onto significantly more expensive SVR rates.

In many cases, the affected landlords have considered selling properties to reduce their gearing and exposure to higher rates, but what about Capital Gains Tax?

The good news is that incorporation re-sets the value of properties for the purposes of CGT.

HMRC manual CG65700 explains that …

“TCGA92/S162 applies where a person other than a company transfers a business as a going concern with the whole of its assets (or the whole of its assets other than cash) to a company wholly or partly in exchange for shares. Provided that various conditions are satisfied, see CG65710, the charge to CGT on the whole or part of the gains will be postponed until such time as the person transferring the business disposes of the shares.

The way the relief works in practice is that all or part of the gains arising on the disposals of the assets are ‘rolled over’ against the cost of the shares.”

What this means in practice is that landlords can sell properties post-incorporation without having to pay CGT that would otherwise have fallen due within 60 days if they had sold those properties without incorporating. This is because the Capital Gains are rolled into the company shares, so the CGT is not payable unless the company is sold, liquidated or wound up.

To establish whether incorporation is the correct path for you to follow please book a landlord tax planning consultation by completing the form below.

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Comments

GlanACC

12:52 PM, 24th May 2023, About A year ago

I agree that S162 is a way of shifting property into a corporate structure, but in the end its just kicking the can down the road, the government will get its tax one way or another.

Mark Alexander - Founder of Property118

13:52 PM, 24th May 2023, About A year ago

Reply to the comment left by GlanACC at 24/05/2023 - 12:52
Not necessarily.

If you never sell personally owned investment properties the CGT dies with you.

The same applies to company shares.

GlanACC

15:17 PM, 24th May 2023, About A year ago

Reply to the comment left by Mark Alexander - Founder of Property118 at 24/05/2023 - 13:52
Yes, thats true. But it could be an issue when I need the money to buy my Ferrari

Mark Alexander - Founder of Property118

15:23 PM, 24th May 2023, About A year ago

Reply to the comment left by GlanACC at 24/05/2023 - 15:17
Talk to me when you do. It’s never been a problem for me 😉

GlanACC

15:27 PM, 24th May 2023, About A year ago

Reply to the comment left by Mark Alexander - Founder of Property118 at 24/05/2023 - 15:23
Yup, will do. still trying to decide what to do with my other non-property business (IE whether son wants it or I will sell it), then will look at what to do with the remaining 6 properties I have

SCP

15:58 PM, 24th May 2023, About A year ago

Reply to the comment left by Mark Alexander - Founder of Property118 at 24/05/2023 - 13:52
Hi
I am really interested in your bespoke advice - to please you, I shall not call it a legal avoidance scheme.
"If you never sell personally owned investment properties the CGT dies with you.
The same applies to company shares."
What you have said is correct, but you have mentioned death.
To most people, death means IHT, and not CGT.
If you do not gift or sell your shares during your lifetime, the shares and any balance on Directors' Loan account form part of your free estate and liable to IHT.
You have to advise clearly the advantages/disadvantages of becoming non-resident to avoid these hefty liabilities, which are postponed.
If you die a pauper, what happens if your free estate has the valuable shares and the Directors Loan Account but the estate has no money to pay the IHT? Is that a plausible way to plan for the future?

Mark Alexander - Founder of Property118

16:11 PM, 24th May 2023, About A year ago

Excellent points and great questions which are answered generally in the page linked below

https://www.property118.com/what-is-a-family-investment-company/

Accommod8

10:59 AM, 31st May 2023, About A year ago

I observed Mark and Mark, and also another tax mitigation firm, at the recent Excel exhibition and may now be ready to act on the £400 fact find video consultation (refundable if required) in which your investment in Prop118's professional fees are apparently detailed.
However, when you are a very small concern like us with only a few properties in an off the shelf Ltd.company, plus two in personal names, I do think it's reasonable to be given a broad sense in the marketing of FICs/Smart Companies of the realms of what it might cost the company as a cashflow commitment, remembering that assets are solids and cash is a liquid which can quickly run down the drain.
I am fully aware that this is a one-off exercise to be structured permanently, but I think you perhaps ought to have a bit of scale about you to justify it.
For example, let's say all costs to get it structured and operational are £14,000 (fourteen thousand pounds). That would equate to my buy-to-let turnover before costs for the properties in the Ltd. Company.
Perhaps I'll fill in the form today and see how the initial phone call goes, and then review which of the two organisations to employ, if either yet, or at all.
Perhaps as Directors, shareholders and spouses we'll mitigate part of the concerns by increasing our whole of life cover very significantly and pay most of our children's premiums for them to neutralise IHT. But then there's the rest of it........

Mark Alexander - Founder of Property118

11:15 AM, 31st May 2023, About A year ago

Reply to the comment left by Accommod8 at 31/05/2023 - 10:59
If tax planning doesn't save you considerably more than it will save you there is little point in recommending it to you. It is extremely rare for that to be the case, which is why we can afford to do the work AND offer the guarantee of total satisfaction or a full refund.

It is quite rare for comprehensive tax planning and implementation to cost less than £20,000 or for the savings over your lifetime to be at least 10 times that number.

SCP

17:30 PM, 31st May 2023, About A year ago

Reply to the comment left by Mark Alexander - Founder of Property118 at 24/05/2023 - 13:52
Hi
I just cannot understand “ The same applies to company shares.”
When you incorporate, your CGT as at the date of incorporation Is replaced by shares, which have a value.
On death, the value of these shares have to be declared for IHT, and IHT has to be paid - assuming have sufficient value.
If you do not pay CGT during your lifetime, then IHT is payable on your death.
Some tax on your personal CGT cannot be avoided.

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