Incorporating property business with different legal owners?

by Readers Question

9:38 AM, 19th September 2017
About A year ago

Incorporating property business with different legal owners?

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Incorporating property business with different legal owners?

I have a portfolio of about 25 properties and having spoken to Mark Alexander I have decided to shortly contact Mark Smith to arrange for him to prepare all the relevant paperwork re incorporating my property rental business by way of beneficial declaration of trust – One point that I and for that fact my Accountant is unable to advise me on is I have a property with a 3rd party

The 3rd party is a silent partner and has had no involvement with the property for over 10 years. He is happy to enter into a Declaration Of Trust transferring ALL the beneficial interest in the property over to me I don’t want to refinance the property for tax purposes and the lender won’t remove him from the deeds as a legal owner- I dont see why I cant add this property to my portfolio before the incorporation .

There is a very substantial CGT bill to pay if it was sold now- This would be in effect a double transfer of the beneficial interest first to me and then to the Company- I cant see that the legal interest of the properties need to only be in the names of the owners doing the incorporation.

It is still a property which beneficially I will wholly own so I don’t see why I cant then transfer it to a Company. Has anybody had any experience of this or have any ideas as to whether this is possible to do.

Many thanks

Simon



Comments

Mark Alexander

10:45 AM, 19th September 2017
About A year ago

Hi Simon

If the beneficial interest is passed to you then SDLT and CGT will need to be accounted for.

It might be better to look upon that particular property as a separate business and exclude it from the incorporation. HMRC would certainly look upon it as a separate business. In HMRC's Internal Manual PIM1030 (linked below) HMRC says as follows: -

"If taxpayers are in more than one partnership, each is dealt with as a separate rental business and the profits of one can’t be set against the losses of another."

Link >>> https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1030

Simon Smith

11:14 AM, 19th September 2017
About A year ago

Reply to the comment left by Mark Alexander at 19/09/2017 - 10:45
Thanks for that Mark
However if the property was transferred into the exising rental partnership business with Bank account changed for mortgage payments to the business account and all income and expenditure shown on the accounts for the existing partnership it would seem that that should satisfy the Revenue as other than the legal estate being in a separate name all the other requirements of a partnership would be covered- The simple question is does each and every property have to have the same legal estate owners or can a property albeit with a separate legal estate owner but identical beneficial owners to the business partnership and subject to HMRC's requirements be acceptable as part of the portfolio to be incorporated

Mark Alexander

11:53 AM, 19th September 2017
About A year ago

Reply to the comment left by simon sausage at 19/09/2017 - 11:14
Hi Simon

If the partnership already owns 100% of the beneficial interest then this can obviously be incorporated.

However, my understanding of the position that you have described is that the partnership does NOT own 100% of the beneficial interests and never has. If that is the case then transferring beneficial interests now may well result in CGT and SDLT becoming due.

Mark Smith (Barrister-At-Law)

8:47 AM, 20th September 2017
About A year ago

Partnership property is any asset utilised for the partnership business, and it is this category of property that passes to newco on incorporation. The legal ownership is not relevant for this process.

Does the silent partner receive income from this one property?


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