Moving a BTL portfolio into a Ltd company structure with no CGT

by Mark Alexander

3 years ago

Moving a BTL portfolio into a Ltd company structure with no CGT

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Moving a BTL portfolio into a Ltd company structure with no CGT

If you could transfer your properties to a limited company without paying any capital gains on the transfer would you be interested? Simon Lever

Massive thanks to Property118 member Simon Lever for sharing this information. Simon is a Chartered Accountant and Business Advisor.

In Simon’s own words ….

“I refer you to the case of Elizabeth Moyne Ramsey v HMRC [2013] UKUT 266 TC.

The basic facts are that after an appeal it was held that the transfer of a property letting business to a limited company was allowable for incorporation relief for CGT and therfore no CGT was payable on the transfer of the shares into the company.

The tribunal details are here.

You will need to take your own advice on this.

There are downsides in respect of the value of the shares that have to be issued, what value is given to the properties and if the lenders would agree to transfer their lending.

However it is a big step to be able to transfer the properties to a limited company without CGT.

I think this is another option that will possibly help you.”

For a commentary please see the embedded video below.



Comments

Simon Lever

3 years ago

BIG WORD OF CAUTION

You need to read the full tribunal decision or get your accountant/solicitor to do so.

The facts of this particular case are slightly different from just investing in property and maintaining it. The freeholders went the extra mile to look after their property (1 building, 20 flats).

They personally cleaned the common parts for example.

If you wish to use this method you MUST take independent advice. I have posted the information but take no responsibility for you following it. As I said every case is different.

There is more that has to follow after this to get some of the value back out of the company but your accountant should be able to advise you on this. (Private company buying back shares).

I would also point out that this is an upper tier tribunal decision which to my knowledge has not been appealed by HMRC. However the premise of the whole case is the difference in the definition of a business and a trade.

It works for CGT but do not extrapolate to income tax. Property investment is not a trade and is not taxed as a trade.

It can be changed by statute as well.

Simon Lever

3 years ago

Also please note. Whilst there is no CGT on the transfer of the property to the company it is deferred and will become payable on the disposal of the shares.

3 years ago

A good friend has a problem, she bought land over 20 years ago as an investment, and placed it in the name of a Limited Company mostly to ring fence it from seizure, if, her familys building business (a precarious volatile trade) ever went bankrupt. It didn't.

In the accounts this land is shown at it's 1990 value. Is there a way she can show its true 2015 value, in order to improve her companies Assets image and Credit score profile without incurring tax problems and investigations. The current credit score is low - but if these assets are included at today's market value in the accounts - then the credit score goes favourable upwards and sky high. What should she do.?

Simon Lever

3 years ago

Reply to the comment left by "Bob Sherwood" at "16/07/2015 - 09:45":

Not quite relevant to this thread but the answer is a simple yes.

She should talk to her accountant about revaluing the land. She may need to pay a professional valuer.

The increase in value is an unrealised gain and if she increases the value of the land in the balance sheet this will also create an undistributable reserve in her capital.

There will be no tax to pay on the gain until it becomes realised. ie when the land is sold/disposed of.

She should also recognise the potential tax due on the revaluation by way of a deferred tax provision.

Mark Alexander

3 years ago

Reply to the comment left by "Simon Lever" at "16/07/2015 - 01:15":

Hi Simon

Further to our telephone conversation this morning I am delighted to welcome you as our latest sponsor.

I have added a contact form to your member profile and sent you a test message. The first one often goes into spam and needs to be whitelisted to ensure others are not missed.

I have an idea for a service that you could offer to Property118 members, perhaps for a fixed fee. This would be to prepare a comparison table of tax payable over the next 6 years based on the latest tax return and the recent budget announcements. You could then offer suggestions for restructuring and quote for that work separately. Some landlords will no doubt prepare their own spreadsheets or use others which will no doubt become freely available. However, I know from experience that several landlords are not comfortable with spreadsheets so I think there could be demand for such a service if it is correctly priced.

Please note the "House Rules" for sponsors >>> http://www.property118.com/house-rules-business-sponsorship/
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Rob Bryer

3 years ago

Is there something you could do here with lease options? Let's say for instance I set up a ltd company that leased the property from me personally? Could this work?

Mark Alexander

3 years ago

Reply to the comment left by "Rob Bryer" at "16/07/2015 - 12:28":

Please walk me through step by step how you think that might work, including example figures if possible please.
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damien D

3 years ago

Hi, i have a question re CGT in reference to transferring assets from personal to ltd company ownership. I guess the issue is how the value of the asset is assessed for CGT when it is being sold/bought.

If i am effectively selling a property to my own ltd company, can i not set the value myself – for example the price i paid for it or the value of the mortgage?

So if i bought a property, say 3 years ago for £100k, its market value now may be £120k, but what is stopping me selling to my ltd company for £100k = no gain, no cgt?

Mark Alexander

3 years ago

To assist the RLA with their campaign I urge all Property118 members to complete this survey >>> https://www.surveymonkey.com/r/2DMVT5Q

It takes less than two minutes.

If you are looking forward to the tax regime kicking in and paying a LOT more tax then you needn’t bother completing the survey. For everybody else it’s a MUST!!!
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Mark Alexander

3 years ago

Reply to the comment left by "damien " at "16/07/2015 - 13:55":

HMRC have wide ranging powers to deal with transfers at an under value, for example, they can unwind the sale or tax as if it had happened at market value.

They have some clever algorithms to check these things too, one of which is the HM Land Registry House Price Calculator data - see >>> http://houseprices.landregistry.gov.uk/price-calculator - this itself isn't a precise science but it's good enough to flag up cases that need to be investigated.
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