Tax advantages/disadvantages in selling a property company vs selling the properties individually

by Readers Question

20:12 PM, 1st January 2017
About 2 years ago

Tax advantages/disadvantages in selling a property company vs selling the properties individually

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Tax advantages/disadvantages in selling a property company vs selling the properties individually

When I first became a landlord I was advised of the tax advantages in holding buy to let properties in a Ltd company rather than individually. However, as I am now getting on in years (it comes to us all in the end) it may be time to sell up.

There are two directors and in order to remain in the lower tax band we only take small dividends each year resulting in the company having substantial reserves. The question is, are there any tax advantages in selling the company as a going concern rather than selling all the properties individually?

Thanks Tax advantages disadvantages in selling a property company vs selling the properties individually

Ray



Comments

Mark Alexander

20:17 PM, 1st January 2017
About 2 years ago

Hi Ray

Happy New Year!

Congratulations too for having the first readers question published on Property118 in 2017.

You have raised an extremely interesting question here, thank you. I consulted with several landlords during 2016 on exit strategies and cash extraction strategies for both immediate and future use. Whilst the following is far from comprehensive it should provide you with a useful overview of the what can be achieved as well as answering some of your questions.

The primary advantage to a potential purchaser is significantly reduced Stamp Duty, which on the purchases of shares is just 0.5% rounded to the nearest £5 - see https://www.gov.uk/guidance/stamp-duty-on-shares

If you sell the properties individually you will have the same personal taxation dilemma in regards to cash extraction, save for the fact that it will be a bigger one because you will have even more cash in the company.

Potential purchasers of the company as a whole are individuals, corporations if your business is big enough and possibly crowd funds. You might also wish to consider a partial sale of the business by selling shares to a group of individuals via a regulated crowdfunding platform. There are plenty of business transfer agents who will be keen to help you sell your company too. You could also consider advertising it in the likes of Estates Gazette so there are plenty of options to consider.

Another very popular exit (or cash extraction) strategy involves emigration to a tax haven. I personally emigrated to Malta in Feb 2016. Once you become resident in Malta you can create a Maltese holding company and sell shares in your U.K. Company to your new Maltese holding company CGT free. The cash in your U.K. company can then be transferred to the holding company tax free. The advantage of doing this is that holding companies in Malta can distribute funds to shareholders who are residents of Malta free of dividend tax. In other words, you can actually have your cake and eat it, regardless of whether you sell up or not. Obviously there are several business and personal considerations before emigrating but do consider it if you're fed up of the UK tax system and want to protect your next egg.

The reasons I chose Malta to emigrate to, other than for the tax advantages, are as follows:-

1) 300 days of sunshine
2) it's in Europe, only a three hour flight to the UK and there are several flights daily
3) they drive on the left
4) it is a British Commonwealth Country
5) it has an excellent NHS service and the 11th highest rated hospital in Europe
6) GDP of the country is high and both crime and unemployment rates are extremely low
7) English is an official National language, all locals speak it, albeit with a Maltese accent
8) the cost of living is lower than the U.K.
9) you can only ever be 30 minutes from the airport and access to the rest of Europe is both cheap and easy with daily flights to most popular destinations
10) in my opinion Malta has some of the best restaurants in the world. There are over 4,000 to choose from despite the island being so small
11) it is steeped in over 7,000 years of history and has strong cultural heritage
12) it is extremely cosmopolitan with no racial tension
13) the sea and the scenery are spectacular
14) there is always something to do
15) public transport is good

I could go on but that's probably enough for now about Malta.

If you might be interested in a private consultation to discuss your options in more detail please see >>> https://www.property118.com/consultancy-mark-alexander/61522/

All the best

Mark
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tony tony

22:02 PM, 1st January 2017
About 2 years ago

Ray you should look into entropeneurs tax relief if your getting out all together , you will only have to pay 10% cgt on your profit

ray selley

0:06 AM, 2nd January 2017
About 2 years ago

Entrapreneurs relief is specifically excluded on the disposal of shares in a BTL company

Mark Alexander

7:58 AM, 2nd January 2017
About 2 years ago

Reply to the comment left by "ray selley" at "02/01/2017 - 00:06":

You took the words right out of my mouth Ray.
.

luca lucan

7:54 AM, 3rd January 2017
About 2 years ago

Ok. bit of a strange question this.

Having looked into this a lot, there are a lot of advantages and problems which are easily solved by emigration. The problem is, having traveled the world over, we love the UK!!

Emigration means you can't spend more than 90 days in the UK in any tax year.

Once you are settled abroad, what's to stop you flying to Dublin; heading North; pick a point on the 310 mile open border; and then simply walk across. Then ferry to Liverpool and you are back on mainland UK. Stay as long as you like! No record of being back in the UK.

Mark Alexander

9:30 AM, 3rd January 2017
About 2 years ago

Reply to the comment left by "luca lucan" at "03/01/2017 - 07:54":

The amount of time you can spend in the UK isn't necessarily 90 days. It can be as few as 14 days in any 365 day period. It depends on the number of ties you still have in the UK such as spouse/children, home, employment and time resident overseas. In some circumstances you could actually be in the UK for 180 days a year without becoming tax resident in much the same way as you could spend 2 X 3 months a year in the USA.

I wouldn't fancy living life as a criminal to get around these rules because that is what tax evasion is. Whilst your trips to Blighty via Eire might go undetected you would be constantly looking over your shoulder, not using a credit/debit card, not posting pics on Social Media, telephone records, worried about needing hospital-care/doctor/dentist, speeding tickets etc. etc. Whilst i'm sure it's theoretically possible I doubt many would be too keen on the Scarlett Pimpernel life.
.

11:17 AM, 3rd January 2017
About 2 years ago

Reply to the comment left by "luca lucan" at "03/01/2017 - 07:54":

The suggested tax advantage of leaving the UK so as to avoid CGT etc on property has completely disappear due to some changes which were in the 2016 Finance Act. These changes took effect for all transactions on or after 5 July 2016. This makes all UK property investment and development subject to UK taxes regardless of where the company or indivdual is located in the world. So moving overseas to avoid tax on property is no longer a solution for anyone - even Non Dom's.

Mark Alexander

11:29 AM, 3rd January 2017
About 2 years ago

Reply to the comment left by "Nigel Reynolds" at "03/01/2017 - 11:17":

Hi Nigel

If you are referring to “Sections 75-78 of The Finance Bill 2016: taxation of profits from trading and investing in UK Land” I believe you are mistaken.

We first reported the issue on 25th August 2016 as raised by The Law Society and fought this challenge alongside them - see https://www.property118.com/capital-gains-on-btl-to-be-taxed-as-income/89928/

On 5th September 2016 we reported victory via this link >>> https://www.property118.com/landlords-will-not-be-taxed-on-capital-gains-as-income/90259/

If you are referring to another piece of legislation or a subsequent update please reference it.
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12:01 PM, 3rd January 2017
About 2 years ago

Reply to the comment left by "Mark Alexander" at "03/01/2017 - 11:29":

Hi Mark

i am referring to those sections and I was surprised that the Law Society made such an issue about it especially as none of the Professional Accounting and Tax Bodies saw any problem with the legislation. That is probably because when they read the original draft they spotted something that the Law Society overlooked which is that it clearly stated and still does that it only applies to non resident companies and individuals. This subsequent confirmation by the Government of something that had already been stated in the legislation hardly counts as a victory.

My original reason for pointing this legislation out was that it makes moving overseas and becoming non resident and even non dom ineffective for property tax planning and that is still a correct statement.

Mark Alexander

12:15 PM, 3rd January 2017
About 2 years ago

Reply to the comment left by "Nigel Reynolds" at "03/01/2017 - 12:01":

OK, let's look at an example.

Say Mr X purchased a rental property in August 1996 for £50,000 and it is now worth £500,000, i.e. £450,000 of capital gain.

He became resident in Malta in Feb 2016 and sold the property in August 2016 for £500,000.

How much capital gains tax do you think he was liable for and why? For ease please assume he's already a higher rate tax payer.
.

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