Moving property from a partnership into a Limited Company

by Readers Question

11:33 AM, 7th June 2014
About 4 years ago

Moving property from a partnership into a Limited Company

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Moving property from a partnership into a Limited Company

We’ve built up a private property portfolio of 4 houses, all rented on ASTs. Currently, each property has been funded with a cash deposit and separate BTL mortgage using my wife’s salary for the multiplier. We use an agent to get tenants and manage the day to day. Moving property from a partnership into a Limited Company

The cash pile is now running low, but we have about 50% equity across the portfolio and we only buy when rents comfortably cover the required borrowings. We’d like to set up a limited company, transfer the portfolio into it and remortgage commercially to release equity to use as further deposits, with the lender providing further advances as and when we find the right properties.

Question is – any idea how the property transfer can be done tax efficiently? If we sell and buy at original purchase price, there will be stamp duty to pay. If we sell and buy at current values, there might be CGT as well. Etc. etc.

I am talking to an accountant, but wondered: Has anyone done this? What did you do? Did you find any pitfalls or workrounds? Tips, suggestions?

Kind regards

Ian



Comments

Mark Alexander

11:43 AM, 7th June 2014
About 4 years ago

Hi Ian

You are definitely wise to seek professional advice on this. I recommend that you check that your accountant is insured to give this advice and also to question his experience in these matters. If you don't get the answers you are looking for I can't recommend these people highly enough >> http://www.property118.com/member/?id=452

If you sell at the original price HMRC will ignore it and will charge you CGT on an assessed market value for the transfers. You will need to pay Stamp Duty and your financing options will become more limited. You will have to redeem your mortgages and arrange new ones and this will inevitably invole arrangement fees, valuation fees and solicitors costs. You will not be able to use your annual personal CGT allowances when the company sells the properties and you may well find it difficult to extract any profits from the company in the longer term. Having said all that, nothing is ever clear cut and there are also advantages associated with having your properties in a limited company. I have investigated this on many occasions but for me, based on my strategy, the advantages of continuing to own properties in my own name far outweigh the advantages associated with moving them into a Limited Company.

Before you make any decision based on the tax implications alone I also suggest that you look into your funding options. I recommend this chap as he's not only a great broker, he was previously a tax investigator >> http://www.property118.com/introducing-mark-edwards/65509/
.

Laura Delow

7:08 AM, 9th June 2014
About 4 years ago

If just getting out equity is you key driver, I suggest you avoid the costs in transferring the assets to a Ltd Co. If your current lenders won't entertain a further advance, then if no early redemption charges on your current BTL mortgages, remortgage up to 75% (up to 80-85% the rates are high) to another lender who doesn't insist on a min earned income eg Birmingham Midshires. The interest rate "may" be higher than you pay now (could be lower if you're sitting on the standard variable rates with current BTL lenders). I suggest you speak with your mortgage broker & have him/her determine the best deals.

All BankersAreBarstewards Smith

9:22 AM, 9th June 2014
About 4 years ago

I have been trying to get a mortgage recently to buy a property which is owned by a limited company and some lenders wont lend..... goodness knows why..... another factor to take into account

Mark Alexander

9:49 AM, 9th June 2014
About 4 years ago

Reply to the comment left by "All BankersAreBarstewards Smith" at "09/06/2014 - 09:22":

Is this the transaction we discussed offline? If it is then I have explained why.

The company has a compulsory strike off order suspended. There is a high likelihood that this means that HMRC have filed a complaint against the company you are looking to purchase from based on suspected tax fraud or money laundering. My advice to you is "RUN!". You will probably find the property in an auction with no reserve at some point, the auctioneers having been appointed by the Crown. That will be the time to snap up a bargain, not before. If in doubt please seek qualified legal advice.
.

All BankersAreBarstewards Smith

9:58 AM, 9th June 2014
About 4 years ago

Reply to the comment left by "Mark Alexander" at "09/06/2014 - 09:49":

yes it is the same property Mark - but you are finding suspicious behaviour where none exists on this one... but thank you so much for your concern for me.....

As a result of your caution I did a lot more research on the company and personnel and am satisfied all is well and I have now got funding for it. The suspension we discussed was due to late filing, and has now been lifted.

The reason I raise it here on this thread is that I discovered that more than one lender has a policy of not lending to limited company sales, and this would limit the lenders a prospective purchaser could go to for funding when Ian comes to sell his portfolio.

Ian From Leeds

11:22 AM, 9th June 2014
About 4 years ago

As always, it seems the answer is not entirely clear!

And there are multiple answers...

Thanks for suggestions so far, keep 'em coming. Particularly keen to hear from someone who HAS actually gone the company set up route. Anyone?

Regards

Ian

Vanessa Barlow

22:02 PM, 9th June 2014
About 4 years ago

I went down the Ltd company route (more advantageous for me as a developer rather than investor). But through the research I did on ltd companies, it looked very complex to transfer properties from personal ownership to ltd companies. The advice I read was to do things on personal basis until it made sense tax-wise to create a ltd company. And then with your NEXT property purchase of it via the ltd company, but not necessarily transferring current property assets. I would agree with Mark re the current market valuations being used. And if you do transfer you should gather and keep evidence of why you believe the current market valuation to be X - land registry values etc. Even then HMRC may disagree with you. I recommend a book by Carl Bayley - saving property tax with ltd companies, it's a very detailed look at when it is and is not advantageous to use a ltd company and when it is better to stick to personal ownership. Often the answer is personal ownership.

Les Charneca

9:14 AM, 14th June 2014
About 4 years ago

I have exactly your proposed setup. How I did it was I set up a limited company and moved one unit across. I used both mine and my wife's CGT allowance in order to over the gain in value. You can't avoid the stamp duty. My company did not physically pay. I used the directors loan account, that way as the rent comes in I can repay myself tax free! Once the asset is in the company name you can then re-mortgage get cash and next year move the next across etc. However you will see there are two issues; you must have enough cash to cover your first transfer and that loans are harder and more expensive for a limited company.

The system is always up to get you. Everyone bank you to buy them in your own name on BTL's. That is to cover their backsides, they are the winners not you. Everyone will end up will millions of pounds of property that they can't dispose off without paying top rate tax or a massive inheritance tax bill upon death. All that work and risk to give half of it away!

The only way to avoid this is to leave the UK on a one way ticket then sell up!

The company route is painful but you can look really long term, importantly beyond your own lifetime.

Incidentally, commercial units should really be held in a pension to be totally tax efficient, but that opens up a separate can of worms.

Mark Alexander

10:03 AM, 14th June 2014
About 4 years ago

Reply to the comment left by "Les Charneca" at "14/06/2014 - 09:14":

Hi Les

You could remortgage all of your original investment out of a property, if lending criteria allowed, tac free without the complications of a limited company structure.

You have mentioned that mortgage rates are higher but so too will be your accountancy fees.

When you want to take more money out of the business how will you achieve this. If you take it as salary you will pay NI and if you take it as dividends you will be no better off that if you owned the property in your own name.

I doubt any lenders will respect Limited Liability status and will have taken personal guarantees on all loans.

There are advantages tax wise in terms of passing on a trading company but I'm not so sure about an investment company. Given that mortgage lenders don't like providing BTL mortgages to trading companies I suspect you will have an investment company to hold your properties.

Accordingly, the advantages appear to be massively outweighed by the disadvantages.

If I were you I'd be asking some questions of the advisers recommended this set-up to you. Maybe even invite them to join this thread and I would relish the opportunity to debate the logic behind their advice in open forum. If they decline then perhaps that will give you your answer.
.

Jason Holden

11:12 AM, 14th June 2014
About 4 years ago

As Mark has said, you need to take proper professional advice from ... No I'm not going to say an accountant this time, this is the remit of a Chartered Tax Adviser who has experience in the BTL market.

The money you pay for this advice will without doubt save you a small fortune later on, and most (like us) will have a free chat to identify if we can assist and only charge when actual written advice and guidance is offered.

Jason

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