£1.7 million landlord tax planning success

£1.7 million landlord tax planning success

16:05 PM, 23rd July 2018, About 3 years ago 11

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Earlier this year we helped a couple to restructure their property rental business in such a way that they will pay no personal tax whatsoever on the next £1.7 million they withdraw from their Limited Company.

This was achieved by arranging bridging facility to allow them to withdraw capital from their business of up to their acquisition costs before completing a sale of their business to their own new Limited Company.

The bridging financier agreed to transfer the facility to the Limited Company on incorporation and the couple retained the cash. However, they did not keep the cash for long! Bridging finance is expensive, so they decided to loan the funds they had borrowed from the bridging financier to their Limited Company in the form of a Directors Loan, which the company then used to repay the bridging finance it had just taken over.

OUTCOME

The new Limited Company owed £1.7 million to its Directors.

The company will repay the Directors Loans out of net sale proceeds of the company properties and/or from retained profits, without any personal tax consequences for the Directors.

If the couple had sold the properties whilst they were in their personal names they would have had to pay Capital Gains Tax on nearly £3.8 million of capital gains. However, if their company now sell the properties, corporation tax will be the only tax due. Best of all, the corporation tax will only apply to appreciation in the values of the properties since the incorporation. The capital gains made before the incorporation now sit in the company shares, not the properties, so for obvious reasons our clients never plan to transfer those shares. CGT ceases to apply after death, i.e. the point at which their children will inherit their shares.

We were happy, our clients were VERY happy.

There was also a way to deal with their inheritance tax problem, but that’s another article entirely (link).

The finance was provided at a very competitive rate by a private funder and was secured against undertakings. This meant that property was not required as security to support the funding, which also kept costs down.

This structure is perfectly acceptable to HMRC. In fact, they even give examples in their Business Income Tax Manuals. The problem for most professional advisers is that they are unable to arrange bridging finance against the security of undertakings. However, we have been doing this for years!

It could be you!

The key criteria in regards to whether the above structure could also apply to you is:-

  • You spend at least 20 hours a week running your property rental portfolio business
  • You are not the sole owner of the business
  • You haven’t borrowed more than the purchase price of your entire property portfolio
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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.
  • Please provide an overview of your circumstances and what you are looking to achieve.
  • Property118 is unique in terms of offering tax planning consultations for a fixed fee of £400 with a guarantee of total satisfaction or a full refund.

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Comments

by Mark Alexander

19:22 PM, 29th September 2017, About 4 years ago

A few technical points for accountants reading this who may wish to refer similar cases to us.

"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.

Relief under TCGA92/S162 is sometimes referred to as ‘incorporation relief’.

A claim is not required because the relief is automatic. However, the person transferring the business can make an election under TCGA92/S162A to prevent relief under TCGA92/S162 from applying, see CG65730."

Source: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65700

by mantelltilly@aol.com

12:25 PM, 28th July 2018, About 3 years ago

Hi, it sounds like a scheme I would be interested in. Would there be stamp duty to pay when properties are transferred?Paul

by Mark Alexander

16:46 PM, 28th July 2018, About 3 years ago

Reply to the comment left by at 28/07/2018 - 12:25
Hi Paul

It isn’t a “scheme”, it’s perfectly legitimate business practice.

I can’t tell you what reliefs you are eligible for until we have completed the full consultation process.

by mark simm

7:18 AM, 29th July 2018, About 3 years ago

Reply to the comment left by Mark Alexander at 28/07/2018 - 16:46
Can you recommend a bridge lender that for this?

by Mark Alexander

8:44 AM, 29th July 2018, About 3 years ago

Reply to the comment left by mark s at 29/07/2018 - 07:18
Yes, we have a private funder who works exclusively with tax planning consultation clients of Property118

by tony

17:31 PM, 17th October 2018, About 3 years ago

hi Mark , sent a application for a consultation last week, expect your busy have had no confirmation , regards

by Mark Alexander

17:47 PM, 17th October 2018, About 3 years ago

Reply to the comment left by tony at 17/10/2018 - 17:31
Hi Tony

We have received no payment or any other information about a consultation booking from you.

Please check with your card provider to see whether they have any record of the transaction and also contact my PA (Yvonne) during normal office on 01603 428504 so that we can resolve the matter and get the process started for you.

I look forward to being of assistance.

Regards

Mark

by tony

18:05 PM, 17th October 2018, About 3 years ago

Ok will do, cheers

by Bruce Patterson

9:12 AM, 10th February 2019, About 2 years ago

Great article Mark

My properties are in Scotland and I have been transferring from my own name to a limited company over the last two years

We have the additional dwelling supplement tax which is 4% of the value so a bit sore when transferring over but long term the right thing to do in my view as the value of the property adds to Directors loan account

Thank you for all your efforts in educating us landlords

by tracyloothes

8:55 AM, 13th January 2020, About 2 years ago

How about Brisbane tax depreciation in properties? Can u enlighten me with this.

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