9:02 AM, 19th February 2019, About 3 years ago 4
The problem I am trying to solve is exit of BTL Property minimising Capital Gain Tax.
Mr James owns in his individual name a BTL property worth £250,000 and purchased at £150,000 so if the property is sold the Capital Gain is £100,000 and the Capital Gain Tax is £28,000 for a high tax payer.
Mr James can do a down payment from savings to make this property mortgage free and then:
1. Gift 50% of the property to wife, this would be exempt of CGT and SDLT.
2. Transfer the property from joint names into limited company into several transactions in multiple years:
– Year 1: Transfer 23% of the property into LTD company. Capital Gain is £23,000 for Mr James and Spouse (£11,500 each) but they can use their annual allowance and pay ZERO CGT. The funds introduced in the LTD company to enable the purchase go as Directors loans, so they can extract the cash in the future sale Tax Free.
– Up to year 4 to 5: Repeat the transactions until the limited company owns 100% of the property.
Implication of this strategy:
1. The transfers to ltd company would be charged with SDLT as “linked transactions” the total SDLT tax payable over £250,000 is £10,000.
2. Assuming the company sells the property at a market value of £250,000 no tax will be payable.
3. The savings of this strategy being £18,000 (vs selling in individual name)
Note that you don’t need to wait until the company owns 100% we can sell on market when the company owns just around 80% and still be CGT free.
I like this ideas as even though I pay 10K of SDTL tax, I can do an overall save of 18K and I have the money ready to be extracted from the ltd company through a directors load. Which does not seem possible with other ideas like the incorporation in exchange of shares.
I appreciate any feedback from any reader!
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