I decided to go Ltd Company route?

by Readers Question

13:49 PM, 27th February 2020
About 7 months ago

I decided to go Ltd Company route?

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I decided to go Ltd Company route?

I have been a part time BTL landlord for many years managing my portfolio of 10 plus residential properties myself, all of which are mortgaged . With the advent of the zero tax relief policy I decided to go Ltd Company route.

I placed 7 of my properties into the limit company leaving 3 in my own name.

I have since given “b” shares to my 6 adult children, but retain control by having “A” shares.

I was always advised, and read that HMRC do not recognise personal BTL investments as a “Business” the prospect of this in relation to the new tax system was daunting to say the least hence my decision to go Ltd.

I have today been advised by my accountant that, because I did not move the “whole” personal portfolio over at the same time I may not be entitled to corporation relief and could incur a huge Capital Gains tax burden !!……I paid the stamp duty of £60.000 at the time.

I am, to say the least, astounded because no one ever advised me of this and my understanding was and still is that HMRC do not accept personal portfolios as a “Business” how can the inland revenue change its mind as it appears, in “retrospect” and now almost 2 yrs later designate my previous activities as a Private BTL landlord as a Business?

Richard

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Comments

Edwin Cowper

14:24 PM, 29th February 2020
About 7 months ago

Mark Alexander points out that the owner here should take legal advise before proceeding.
I have been surprised that so many people with clear legal issues just go along on their own. or rely on advice from "whats-his-name"
Even small landlords are dealing with high value assets. Yet they don't get legal advice. The cost of the advice compared with the cost of getting it wrong are minute. You can always get a quote.
Whilst one of the benefits of this site are that you know you are not alone, some of the advice on this site has been legally wrong, or did not pick up the easier route through the issue.
I am a lawyer - no longer giving advice to the public - so no personal axe to grind.
If you get paid advice and it is wrong, there is likely to be a claim against the adviser. If you don't have an adviser, you can only claim against yourself

Simon Hall

21:48 PM, 1st March 2020
About 7 months ago

Reply to the comment left by Mark Alexander at 28/02/2020 - 21:30
Mark, similar type of strategy is recommended by LessTax4Landlords, if I rightly remember, you were critical of their policy. Now it almost looks as if Property118 has replicated their idea? I hope you do not take this wrong way. This is only an observation.

Mark Alexander

22:26 PM, 1st March 2020
About 7 months ago

Reply to the comment left by Simon Hall at 01/03/2020 - 21:48
Hi Simon

LT4L are very tight lipped about what appears to be their 'one-size-fits-all' their strategy, but what they do let slip from time to time simply doesn't work. For example, forming an LLP does not transform a property rental business into a trading business which qualifies for entrepreneurs relief and business property relief, but their YouTube video's suggest otherwise. Furthermore, they have never said why their strategy to divert rental profits into a Corporate Member doesn't fall foul of the transfer of income streams legislation. I've also heard they transfer debt and beneficial interest to Corporate Members on the basis that one offsets the other and is somehow treated as £nil consideration. However, debt does not offset transfers of beneficial interest (which attracts both SDLT and CGT), so many of their customers might get a massive CGT shock if that is, in fact, what they are recommending and doing. As we know from the original poster here, incorporation relief ONLY applies when the 'whole business' is transferred.

The fact that we also recommend LLP's is meaningless. We recommend the most appropriate business structure in all cases. However, for the avoidance of any doubt, Property118 does not recommend ‘tax avoidance schemes’ which seek to abuse the tax system or could fall foul of HMRC’s General Anti Avoidance Rules - ‘GAAR legislation’. There are plenty of perfectly legitimate forms of tax relief and methods to structure your property rental business to optimise your tax position, and it is those structures and reliefs we stick to recommending.

SimonP SimonP

6:56 AM, 4th March 2020
About 7 months ago

Slightly off-topic but if one wanted to form an FIC (Family Investment Company) are there any people or companies within your network that you could recommend, please?

Thanks.

Mark Alexander

8:29 AM, 4th March 2020
About 7 months ago

Reply to the comment left by SimonP SimonP at 04/03/2020 - 06:56
We have never recommended FIC’s.

Are you not aware that HMRC are all over them at the moment?

tony

17:12 PM, 4th March 2020
About 7 months ago

Reply to the comment left by Mark Alexander at 01/03/2020 - 22:26
Hi with regards to the LLP structure the scenario is always the partner/adult children have no income, can anyone give example if all earning and at least in 20% tax bracket, thanks

Mark Alexander

17:32 PM, 4th March 2020
About 7 months ago

Reply to the comment left by tony at 04/03/2020 - 17:12
If all Members are higher rate tax payers there would be no income tax benefit. The income tax benefit occurs when profits are allocated to a basic tax tax-payer as opposed to a higher or additional rate rate tax payer. The income tax benefit benefit on that basis is either £2,000 or £2,500 a year respectively for every £10,000 a year of profit allocated to the basis rate tax payer.

The above is, of course, very much a generalisation. If you would like to provide some actual figures I will be happy to produce a worked example. However, it might not be until the weekend because I’m flying to Florida tomorrow.

Does that help

tony

17:52 PM, 4th March 2020
About 7 months ago

Reply to the comment left by Mark Alexander at 04/03/2020 - 17:32
Hi Mark , if children are all earning around 40-50k , or to keep it simple say all on 50k , would the LLP route benefit in this case with a view to maybe later Incorporation, have a good Holibobs, cheers

Mark Alexander

18:00 PM, 4th March 2020
About 7 months ago

Reply to the comment left by tony at 04/03/2020 - 17:52
Hi Tony

If the children were all earning £50,000 (currently the upper end of the basic rate tax band) there would be no income tax advantage. However, for business continuity, legacy and IHT planning there could still be advantages. An LLP mustn’t be considered purely as a passport to saving SDLT on incorporation, there must be other commercial reasons, but if there are genuine commercial reasons that the SDLT savings could be enormous if the business is incorporated at a later stage.

I hope that helps?

tony

18:05 PM, 4th March 2020
About 7 months ago

Reply to the comment left by Mark Alexander at 04/03/2020 - 18:00
Thanks Mark

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