Tax Restructure Opportunity For Portfolio Landlords

Tax Restructure Opportunity For Portfolio Landlords

13:08 PM, 14th July 2015, About 6 years ago 21

Text Size

As most portfolio landlords have realised, if the Summer Budget tax reforms go ahead, they will arguably be the most devastating blow ever dealt to landlords, especially those with a high gearing strategy who own properties as individuals. Tax Restructure Opportunity For Portfolio Landlords

There may well be opportunities to restructure into a company without transferring assets or triggering CGT and SDLT.

Just suppose I set up a new limited company and my broker puts in an application to a commercial lender for a big loan, equal to my BTL mortgage.

The four most important questions the proposal must address are:-

1) What is the security?

2) How will the loan be serviced?

3) What is the money to be used for?

4) What is the track record of the borrower?

In my case, the answers would be:-

1) I am prepared to offer a personal guarantee secured by first charge over my BTL properties which are worth £………

2) I will grant a 25 year lease on my properties to the new company at a rent sufficient to match interest cover requirements, and of course to wipe out my tax completely. Note that the chancellors tax only applies to finance costs, not rent 😉

3) I want the money to repay my existing BTL mortgages as the tax regime is no longer effective for me. I can’t transfer the properties to the company without incurring CGT, which is sadly not available for rollover relief

4) My pedigree as a landlords is ……….

I would continue personally to be responsible for the letting and the income, maintenance, insurance etc, as the landlord, but as opposed to paying interest, I would be paying rent to the head lessee (NewCo). I would be liable to pay tax on any profit I make personally, but guess what, I doubt there will be any! 😉

All I need to do now is to persuade a few commercial lenders to consider this structure (and perhaps a few of the more commercial BTL mortgage lenders) and to negotiate decent terms. I suspect they are as worried about the Budget announcements as most portfolio landlords are (default possibilities), so I suspect they might be a lot easier for me to convince than some people might imagine, especially due to my commercial finance broking background and all of my contacts in the NACFB, both member brokers and lander patrons.

This structure is likely to be most attractive to landlords with high levels of borrowing (e.g. over £1 million)

Have I cracked the problem for established portfolio landlords like me, those of us who will be worst affected by this budget?

I will be sharing the results of my investigations with my Consultancy clients, including ………

1) details of all lenders who are willing to consider this structure, and

2) copies of the documentation I use to put such an arrangement into place

The cost of becoming one of my Consultancy clients is £1,995. Usually, this is for 6 months of telephone and email support (and one face to face meeting of up to 4 hours) but I will be sharing my research will all of my Consultancy clients regardless of when my research is completed, i.e. I will still share it even if it’s completed a year from now.

I will not be sharing my research and documentation openly on the forum, the reason being that I need to commercialise what I am doing in order to fund the costs of my research, and all necessary professional advice from specialist tax accountants and lawyers.

My Consultancy fees will not cover any costs of implementation of the strategies I share, or any bespoke professional legal or tax advice that you require.

Show Book a Tax Planning Consultation

Book a Tax Planning Consultation

Consultations include Fact Find, expert analysis and a recorded video conference with your Property118 Consultant and your Accountant. Thereafter, our recommendations will be reviewed by Cotswold Barristers (at no extra charge). If they agree, and if you instruct them to complete the legal work to implement our suggestions, Cotswold Barristers will adopt our recommendations as their own professional advice, for which they carry professional indemnity insurance of £10,000,000 per claim. All consultations are confidential and you will be provided with a copy of the recording of the video conference. We GUARANTEE total satisfaction or a full refund.
  • Please provide an overview of your circumstances and what you are looking to achieve.
  • Property118 is unique in terms of offering tax planning consultations for a fixed fee of £400 with a guarantee of total satisfaction or a full refund.


Comments

by

0:23 AM, 15th July 2015, About 6 years ago

Reply to the comment left by "Mark Alexander" at "15/07/2015 - 00:04":

if cgt could be reduced to negligible (there are alternative mechanisms to achieve this) what other implications will kick in by tx to ltd staus...?

by Phil Ashford

7:03 AM, 15th July 2015, About 6 years ago

Hello Mark

I'm struggling to understand this structure, maybe a diagram would help. However, as I understand your proposal, you want the individual to retain ownership of the asset and to lease it to a Close Company which you own.

What I don't understand is if you have leased it to your Company, how you as an individual now control the house in order to carry on letting it out, since it's not under your individual control anymore, the Company has control?

A lease as you propose can indeed trigger a CGT liability. Hopefully your advisors will tell you that.

They should also tell you that the transaction you propose is between connected parties and that for tax purposes, an asset valuation will be required to determine the Arm's Length value of that transaction for CGT purposes. See TCGA legislation. You will definitely require a Post Transaction Valuation Check for something like this.

So, I'm not sure if, when you get the advice, the advice will support what you are hypothesising above.

All the best though.

by Peter Pynadath-George

9:07 AM, 15th July 2015, About 6 years ago

Reply to the comment left by "Phil Ashford" at "15/07/2015 - 07:03":

My thoughts exactly Phil. Whatever you are leasing to your LTD co. it will be have to be at the market rate for that property. I am proposing something similar to my accountant, as most of my purchases are held in my personal name. I am looking to lease my properties to my Ltd co at the market rate which will be marginally less than what I get via Student rents. But my long term plan is to slowly transfer my properties from personal to ltd. This is a game changer for many LLs out there and will be painful, but we have 5 yrs to sort ourselves out. I should be a ltd co purely because of the size of my portfolio of properties, but I was delaying it, not anymore!!

by Simon Lever

14:01 PM, 15th July 2015, About 6 years ago

How do you repay your personal borrowings?

From what I read, and I amy be wrong, your initial post said you repalce your personal borrowings with a loan to the company. If the money from the new lender goes into the company how do you get it out to repay the personal borrowings?

If the loan is to the company/int he company's name and you use personally, even if the funds do not actually go through the company bank account, you are still drawing money from the company.

Getting money out of a company will always involve paying tax somehow.

Have I missed something?

by Mark Alexander

14:41 PM, 15th July 2015, About 6 years ago

Reply to the comment left by "Simon Lever" at "15/07/2015 - 14:01":

Yes and no, sorry, can't say any more until I hear back from my tax advisers and then only to my clients.
.

by Simon Lever

15:53 PM, 15th July 2015, About 6 years ago

Mark

I understand your reticence to disclose if you can make money out of it.

How about I give you a freebie!

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

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: http://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CDQQFjACahUKEwjNv-3Wq93GAhWFOBQKHf5bAAU&url=http%3A%2F%2Fwww.tribunals.gov.uk%2Ffinanceandtax%2FDocuments%2Fdecisions%2FElisabeth_Moyne_Ramsay_v_HMRC.pdf&ei=Z22mVY3wCYXxUP63gSg&usg=AFQjCNGv_b1TDOVx-Kw2CzdQQqAik9vqjw&sig2=veVx0ztzCYg35XD9VQnNGg&bvm=bv.97653015,d.d24

For a commentary see here: https://www.youtube.com/watch?v=o2BBoSjHXIw

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.

by Mark Alexander

16:06 PM, 15th July 2015, About 6 years ago

Reply to the comment left by "Simon Lever" at "15/07/2015 - 15:53":

Thank you for that, it isn't what I had in mind but I will refer my accountants to it.

At this stage I am more interested in sharing my costs than making money, although the latter would be very nice indeed.
.

by Mark Alexander

18:52 PM, 15th July 2015, About 6 years ago

Reply to the comment left by "Simon Lever" at "15/07/2015 - 15:53":

Hi Simon

Referring back to your earlier post I have a few questions if I may please:-

1) Does the existing mortgage debt have to be transferred or can it be replaced with new debt via a new lender?

2) Please expand on what you meant when you said "There are downsides in respect of the value of the shares that have to be issued"

3) Please expand on what you meant when you said "However it is a big step to be able to transfer the properties to a limited company without CGT"

I am also very interested in discussing opportunities offline with you and will send you an email.
.

by Simon Lever

13:06 PM, 16th July 2015, About 6 years ago

Reply to the comment left by "Mark Alexander" at "15/07/2015 - 18:52":

1) No reason why old debt cannot be replaced by new debt but there will be a timing issue which will have to be co-ordinated as the properties move into the new company.
Maybe some form of bridging finance to repay the old mortgages personally before new debt in company takes over.
You would have to find a financier who would be happy to cover the move into the company.

2) The shares have to be issued for the WHOLE of the business, you cannot pick and choose properties. The value of the shares for CGT purposes will be the original cost of the properties going into the business. You would either have to issue a substantial amount of shares or create a share premium account.
In order to get some value out of the company you would have to look at something like a share buy back by the company or an EBT. I have not looked at these but they would have to be considered as part of the overall strategy when considering this option.

3) Being able to transfer a whole property portfolio to a limited company without paying CGT and to then be able to get full relief on the loan interest is, I think a "big step" in mitigating the chancellor's tax grab.

However, as I have said before, this is not for everyone and it very much depends on the particular circumstances of each case.

by Mark Alexander

13:27 PM, 16th July 2015, About 6 years ago

Reply to the comment left by "Simon Lever" at "16/07/2015 - 13:06":

Hi Simon

I agree with all of the points you have made and these are my further thoughts, same numerical order:-

1) It is more likely to be one of the challenger banks that could facilitate this this form of financing, e.g. Shawbrook, Aldermore etc. The private banks are also likely to be able to get their heads around the structure of such requirements, e.g. Handlesbanken or Coutts. This is only likely to be viable for larger portfolio (e.g 20+ properties) and only where LTV and gearing are strong, e.g. 150%+ rent cover and 70% LTV max. Forget the likes of BM Solutions and TMW for such a transaction, or indeed their pricing. It will require a good commercial finance broker to present a deal of this nature. Given that Mark Edwards was a former Tax Investigator and was trained as a commercial finance broker by me, he would be my first choice. He's the top man in the industry in that no other broker has ever earned as much fee income in a year since he set the record. Link to his member profile here >>> http://www.property118.com/member/?id=3042

2) I have previously used the EBT structure to convert what would have been a huge tax bill into 10% tax. It works!

3) I agree, and it wouldn't be cheap, both in terms of fees and the higher interest rates. It is an option to keep on the back burner though, just in case something better doesn't come along before 2017 - hopefully a complete u-turn - we live in hope!
.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

BECOME A MEMBER