Looking for advice on the transferral of a residential property to a limited company if anyone is willing to share their thoughts.
3-bed semi- detached property bought at auction for £150k
£200k vaue added through refurb
current market value £350-£375k
this is the only property I currently own (outright, no mortgage, primary residence)
I am looking to move quite quickly and want to release up to £250k for an onward mortgage (let-to-buy) to enable the purchase of a family home
2nd home stamp duty on the property I’m looking to buy is £36k So I need to avoid, which I understand I can do by structuring it this way.
My understanding is that:
no CGT will be payable on the transfer (it’s my primary residence)
SDLT will apply (£7k at £350k)
legals will be payable on both the company and individual purchases
The percieved benefit is that:
I will be able to offset 100% of mortgage interest as a company (interest only mortgage)
I will be able to pay myself dividends at a lesser rate of tax (0% up to £500, 8.75% on basic rate earnings
the capital ‘gain’ has already been realised, but taken out effectively as ‘debt’ - or a loan - to myself, and therefore not liable for tax
Further capital gains are unlikely on the property in the next 5 years so a large CGT bill is unlikely
Future Plans / Objective:
Depending on whether the property performs well as FHL or straighforward AST will dictate the long-term plan, although I don’t want to commit for the long-term. Probably 2-5 years max
Any thoughts would be greatly appreciated, particulraly around whether I would need to avoid being the sole beneficiary or director of a company that owned this property.
I would have thought you would be better off asking an accountant but my understanding is that companies are subject to the 5% surcharge so you would pay £17,500 in addition to the standard £7k stamp duty.
You’re also likely to have fewer lenders willing to offer a mortgage and those that do will charge higher rates. Insurance may also be more expensive. I’ve spoken to a couple of specialist accountants in the past and both have said that its not worth transferring a property individually owned to a company.
Figure out what your real objective is - is it raising cash for family home, not paying extra SDLT; or avoiding potential CGT? Or maximizing income after tax. Only then can you work out the best option.
Historically BTL rates I think higher than residential mortgage rates (affordability risk depends on projected rental income stream not current earnings used to assess residential mortgage) so you may be better remortgaging less of the BTL property value and having a higher residential mortgage. But ask a mortgage broker.
Thanks David. Understood. Hopefully the fact it’s my primary and not currently mortgaged may simplify things.
I wouldn’t be doing it unless I had to take the equity - in an ideal world I would sell, but I need to move on and it’s generating decent income currently (I’m testing the market).
The broker I spoke to suggested I flip it to a limited company, so assuming he has quoted on those rates. Higher insurance (potentially) and higher rate SDLT I hadn’t factored in, so thanks
Thanks Richard. I think you might be right about the higher rate SDLT, although relief may be availble:
Availability of Reliefs: Reliefs may be available if the property is purchased for a commercial purpose, such as a property rental business, property development/trading, or if it is used in a trade involving making the property available to the public. If a valid relief is claimed, the company might pay the standard residential rates or non-residential rates, depending on the circumstances.
I assume it would be classed as a property rental business, but I will certainly look into this, thank you.
