Landlord Incorporation – Company Indemnity of Existing BTL mortgages

by Mark Alexander

8:51 AM, 31st December 2020
About 4 months ago

Landlord Incorporation – Company Indemnity of Existing BTL mortgages

Make Text Bigger
Landlord Incorporation – Company Indemnity of Existing BTL mortgages

The following quote, confirming that refinancing is NOT necessary at the point of incorporation, comes directly from the HMRC manual …

“The transferor is not required to transfer business liabilities to the company but often does so. This is normally done in practice by the company giving the transferor an indemnity in respect of those liabilities.

In strictness, business liabilities taken over by the company represent additional consideration for the transfer and relief under TCGA92/S162 should be restricted. However, ESC/D32 enables any business liabilities taken over by the company to be ignored when quantifying `other consideration’ in recognition of the fact that the transferor is not receiving cash to meet any tax liabilities on the transfer and that the shares in the company are worth less than if the business had been transferred unfettered by liabilities.

ESC/D32

Where liabilities are taken over by a company on the transfer of a business to the company, the Revenue are prepared for the purposes of the ‘rollover’ provision in TCGA 1992 s 162, not to treat such liabilities as consideration. If therefore the other conditions of s 162 are satisfied, no capital gain arises on the transfer. Relief under s 162 is not precluded by the fact that some or all of the liabilities of the business are not taken over by the company.

The concession applies only to business liabilities. Personal liabilities of the transferor taken over by the company should always be treated as part of the consideration. In particular any tax liability arising from the business transferred is a personal liability.”

Source: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65745

If you ever consider transferring your property rental business into a Limited Company (which all landlords absolutely should do) there are four important considerations you must not overlook:-

  1. How much better off will you be? To help you to calculate this we have developed software you can download for just £97 – details via THIS LINK
  2. Will CGT be payable? Given that you will be selling your properties to the Limited Company, you will be crystalling your capital gains. Ordinarily, this would mean that Capital Gains Tax is due. However, in certain circumstances, ‘incorporation relief’ will enable you to roll some or all of the capital gains into shares in your Limited Company which you exchange for equity in your properties. The rules are explained HERE. The software mentioned above also calculates the CGT position for you.
  3. Will the company need to pay Stamp Duty when the properties are transferred into it? Given that the company is essentially buying the properties from you, Stamp Duty would ordinarily apply. However, in certain circumstances, relief is available. The rules are explained HERE. The software mentioned above also calculates the Stamp Duty position for you.
  4. Will you need to refinance? The costs of refinancing can be extremely high. Furthermore, if you are tied into mortgage deals with early repayment charges or you have particularly competitive financing terms already, it may not be economically viable for you to apply for new mortgages in the Limited Company name. However, there are legal structures available which enable you to defer new financing until it is financially viable for you, or to the end of the existing mortgage term. The HMRC manual which is the subject of this article confirm this to be the case, but the process needs to be done propely. Details HERE.

Form To Book A Tax Planning Consultation

Consultations include Fact Find, expert analysis and a recorded video conference with your Property118 Consultant and your Accountant. Thereafter, our recommendations will be reviewed by Cotswold Barristers (at no extra charge). If they agree, and if you instruct them to complete the legal work to implement our suggestions, Cotswold Barristers will adopt our recommendations as their own professional advice, for which they carry professional indemnity insurance of £10,000,000 per claim. All consultations are confidential and you will be provided with a copy of the recording of the video conference. We GUARANTEE total satisfaction or a full refund.
  • Book a Tax Planning Consultation

  • Please provide an overview of your circumstances and what you are looking to achieve.

How liable would we be in the case of a fire?

Smart Property Company Structures

Smart Property Company Structures

Landlord Incorporation Specialists

Landlord Incorporation Specialists

Tax Consultation Testimonials

Tax Consultation Testimonials

Incorporation without Refinancing

Incorporation without Refinancing

Incorporation relief and latent gains explained

Incorporation relief and latent gains explained

Landlord Incorporation Strategies – Update for 2020

Landlord Incorporation Strategies – Update for 2020

HMRC Investigation into £9million Property118 ‘Incorporation Relief’ Claim

HMRC Investigation into £9million Property118 ‘Incorporation Relief’ Claim

Capital Account Restructure – Case Study

Capital Account Restructure – Case Study

What Does “Washing Out CGT On Incorporation” Actually Mean?

What Does “Washing Out CGT On Incorporation” Actually Mean?

Stamp Duty when transferring the ‘whole business’ of a Partnership into a Limited Company

Stamp Duty when transferring the ‘whole business’ of a Partnership into a Limited Company

Incorporation Viability Analysis for UK Landlords

Incorporation Viability Analysis for UK Landlords

Inheritance tax and legacy planning for property company owners

Inheritance tax and legacy planning for property company owners

HMRC Internal Manuals ‘Landlord Incorporation’

HMRC Internal Manuals ‘Landlord Incorporation’

The optimal ownership structure for UK landlords

The optimal ownership structure for UK landlords

Guide for landlords on forming an LLP for property investment

Guide for landlords on forming an LLP for property investment

LLP structure reduces landlords tax bill by 85% – CASE STUDY

LLP structure reduces landlords tax bill by 85% – CASE STUDY

Partnership taxation and associated rules

Partnership taxation and associated rules

Property valuations for tax planning purposes cost just £19.95 each

Property valuations for tax planning purposes cost just £19.95 each

Hybrid Tax Structure – Landlords BEWARE!

Hybrid Tax Structure – Landlords BEWARE!

Book A Consultation

Book A Consultation

Using a property investment LLP for school fees planning purposes

Using a property investment LLP for school fees planning purposes

LBTT for sole owner landlord incorporation in Scotland

LBTT for sole owner landlord incorporation in Scotland

Stamp Duty relief on properties split into multiple dwellings

Stamp Duty relief on properties split into multiple dwellings

Expat Landlords Tax Planning Opportunity

Expat Landlords Tax Planning Opportunity

Open A Business Bank Account In Minutes

Open A Business Bank Account In Minutes

Four Property Investment Structures – Video Interview

Four Property Investment Structures – Video Interview

Landlord incorporation and tax planning presentation

Landlord incorporation and tax planning presentation

Become a Property118 Affiliate

Become a Property118 Affiliate

Tax Free Interest On Your Directors Loan

Tax Free Interest On Your Directors Loan