New Tax Strategy For Accidental Landlords

by Mark Alexander

7:32 AM, 8th April 2016
About 3 years ago

New Tax Strategy For Accidental Landlords

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New Tax Strategy For Accidental Landlords

New Tax Strategy For Accidental LandlordsFor those new to buy to let and considering the letting of their current home, in order to buy another for themselves (usually at a higher price) there is a way to avoid the 3% SDLT surcharge on the more expensive property by following this strategy.

Create a new limited company and sell your current home to it. This will require you to obtain a company buy to let mortgage.

The new company will pay SDLT on (presumably) the lower  value property. Remember, a company is a separate legal person in law.

No CGT will be payable on the sale because private homes are exempt.

Your next property will then be YOUR only property so the 3% SDLT surcharge will not be payable.

The buy to let property will sit in the company which will be able to claim 100% of mortgage costs as an expense to set against its profits. This is despite the Chancellors attack on landlords in the Summer 2015 budget. Furthermore, rental profits will only be taxed at the 20% corporation tax rate which is scheduled to be reduced to 17% by 2020. The first £5,000 of annual dividends to each shareholder of the company will also be tax free.

You may also find these related articles helpful …

Partnership incorporation with no CGT or SDLT

How does s162 incorporation relief work for landlords?

Beneficial Interest Company Trusts – Avoid Refinancing When Incorporating

SDLT on Rental Property Business Incorporation

FAQ’s – Beneficial Interest Company Trusts

 



Comments

Ian Ringrose

14:06 PM, 8th April 2016
About 3 years ago

But BTL mortgage rates tent to be higher if the property is owned by a LTD.

And when the company comes to sell the property (and you take the money out of the company) there will be a LOT more tax to pay then if it was still personally owned - the CGT breaks for properties that used to be your main home are large.

There is also tax to pay if you every move back into the property.

So not a good option for most people.

Lyndon Whitehouse

9:52 AM, 9th April 2016
About 3 years ago

Hi Mark - hope life is good in Malta!
Just a quick comment. My solicitor informs me that when a limited company purchases it's first property there is no SDLT. As you rightly point out, the new company is a 'separate legal person' and as such, that 'separate legal person' will only own one property - No SDLT on one property.

David Hamilton

11:17 AM, 9th April 2016
About 3 years ago

My understanding is that first purchase by a company is liable to the 3% SDLT charge

"2.20 The first purchase of a residential property by a company or collective investment vehicle

As made clear in this consultation, where an individual purchases their first residential property the higher rates will not apply. If the government mirrored this treatment for purchases made by companies and collective investment vehicles this would create a potential tax avoidance opportunity.

In particular, an individual could purchase an additional property via a company to avoid the higher rates of SDLT.

To guard against this avoidance risk the government proposes that the first purchase of a residential property by a company or collective investment vehicle is subject to the higher rates of SDLT (subject to the final decision on the treatment of significant investors as discussed in section 2.19). "

https://www.gov.uk/government/consultations/consultation-on-higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties/higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties

Mervin SX

13:03 PM, 9th April 2016
About 3 years ago

Reply to the comment left by "David Hamilton" at "09/04/2016 - 11:17":

If you read Mark's topic above, he does say that the LTD company will pay stamp duty, but it will be for the current residence, which is usually of a lower value if someone is looking to move to a bigger/expensive property.

Not great for someone downsizing, but then not many would want to let out a larger property?!

Mark Alexander

6:45 AM, 10th April 2016
About 3 years ago

Reply to the comment left by "Lyndon Whitehouse" at "09/04/2016 - 09:52":

Hi Lyndon

Malta is awesome thanks, true paradise. I count my blessings every day.

I also read that on a solicitors website and got very excited about it for a while. As Mervin SX has said above, it would have created fantastic tax planning opportunities by using a TopCo and multiple SPV company structure to avoid the surcharge.

HOWEVER, for the reasons mentioned by Mervin SX, the rumour was proven to be incorrect and the article vanished.

Nevertheless, a tax planning opportunity does still exist in circumstances whereby an owner occupier is substantially trading up and letting their former home.
.

H B

10:40 AM, 10th April 2016
About 3 years ago

So from what I can understand from the above, the additional 3% is payable on the purchase of the former property by a company, but not on the cost of the new property. If you traded up from a £300k property to a £500k this would save £6000.

On the downside there would be the higher mortgage rates attached to a limited company and arrangement fees and set up costs.

steve p

23:59 PM, 12th April 2016
About 3 years ago

Could there also be another loop hole... Those that have BTL properties but not their own, currently living in parents property, could they buy a small slice of the parents property (could get complicated if SDLT is needed but if you keep the proportion low you should be ok), then say 6 months later when they go to buy, sell their stake back to parents and buy new property...

They have then sold the property they are currently living in and bought a new one...

Im sure its too simple to work and im sure you guys will find the problem with it but just wondering if its a possibility?

Sunny K

12:34 PM, 13th April 2016
About 3 years ago

Another strategy which could for Accidental Landlords:
Transfer the current main residence as a gift to a person you could trust!!(not partner). The recipient will only pay any SDLT on mortgage amount as per HMRC guidance https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property.
Following this, you have disposed you main residence and could buy a new main residence without additional SDLT.
The gift recipient kindly gift back the property to you. Again any SDLT only due on mortgage amount.
This will work best in case when the mortgage is below 40k or preferably none.

.

Paul Mahoney

10:44 AM, 23rd April 2016
About 3 years ago

Great idea Mark
Very useful for those looking to upsize and could be good tax planning for the BTL also if the owner is a higher tax rate payer so it's a two birds with one stone solution.
If anyone wants to utilise this strategy please do get in touch with me regarding arranging the LTD company and sourcing the most cost effective and suitable finance options.

Simon Lever

14:02 PM, 9th May 2016
About 2 years ago

If the property is valued at over £500,000 watch out for the ATED regime to bite. There are exemptions but I think that if at any stage after transferring the property to the company - including the day of transfer - the property is lived in by any connected person then there may be a payment due.
Details here: https://www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics
Take professional advice before doing anything.


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