9:00 AM, 28th May 2023, About 4 months ago 14
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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