Sell rented property to your Ltd (for cash)

**Andrew@Wisteria** · 1 September 2015, 12:14

Originally posted by d000hg View Post

Last time I read any posts about "should I own my BTL personally or through a company" the advice was that owning personally was better. Is this still expected to be the case entering 2016?

But regardless, what are the rules/issues if one did want to move a personal rental property into their Ltd?

We started renting our first house out (cost ~£60k) in 2010 as we wanted to move and didn't want to wait to find a buyer. We have an interest-only mortgage at ~1% so haven't been paying it off - it's a residential mortgage with a clause that allows renting, not a BTL mortgage. It strikes me that taking £60k out of my Ltd to pay off the mortgage would take some years if we want to avoid paying a lot of tax, and wondered about the possibility of MyCo buying the property (for cash so that there's no mortgage to consider).

Does this make any sense, and is it relatively straightforward or would I run into a whole mess of legal issues around things like the sale price, etc? Are there any substantial advantages or disadvantages to doing it?

The advice for property investment is still typically not to sell the property to your Limited as you may incur a capital gains charge.

However, after looking into the new rules, for new purchases a higher/top rate taxpayer would now appear to be significantly better off taxwise trading via a Limited company, as (at the moment) there is no 20% restriction on the mortgage interest expense deduction for a company, but there is for a higher/top rate taxpayer. Of course, this assumes that the interest costs (or loan-to-value) is quite high.

Of course the above advice would need to be properly looked into.

Happy to share my spreadsheet workings with you.

Andrew

**ASB** · 1 September 2015, 12:15

You can simply transfer via a TR-1 and a few other bits and pieces to cope with money laundering regs etc. Of course all relevant parties have to agree. The basic implications:-

1. It's a sale at market value. You have to figure out what this is and be able to justify it. Estate agents guide and knock the negotiation factor off and some comparative sale price etc should provide enough to justify the price.

2. It's a disposal for CGT purposes so will trigger CGT charge.

3. It's chargeable to SDLT at the transfer price.

It seems though that there is still 60k owing on the Mortgage. The lender won't allow the sale until they are paid off - though may be prepared to transfer mortgage to the company (at no doubt much increased rates).

I guess you could perhaps transfer the mortgage to you prime residence, but again likely to involve fees etc.

You could take advice on selling part of the property to the company; you could do this via a deed of trust or second charge. Strictly you could sell the property to the company at market rate but not notify the mortgagor or the land registry, the company ownership then ranking below the mortgage of course but it is getting into major potential complexities.

**Jessica@WhiteFieldTax** · 1 September 2015, 12:18

If anything the post 2016 regime makes corporate ownership of BTLs less attractive.

The issue is that personal CGT is more benign than corporate taxation on sale of a BTL, therefore its better to suffer the corporate tax hit on the dividend / profit extraction from co now, and have property value increase within more benign personal CGT regime, than defer tax by buying in the company and have a larger tax bill on sale and extraction from the company at retirement or plan B time.

Personal CGT is 18%/28%. Tax on selling a property in the company will be normal Corporation Tax plus either tax on dividend at normal rates (post 2016 increase of course) if the company is continuing or CGT at 18%/28% (on top of CT) (no entrepreneurs relief ) if the company is ceasing (and no ER on other reserves in company either).

You can do a discounted cash flow on the whole thing but with low interest rates it won't change much. In essence, a smaller tax bill now or defer everything now and pay more later.

Also mixing trading activities and investing activates isn't good from a risk mitigation point of view. IF you had a large bad debt in company, or an unexpected IR35 charge, you have some isolation via limited liability. Any assets owned by company would be at risk.

In terms of selling an existing BTL to company, it would need to be at market value so you would incur a personal CGT bill with no rollover or deferral option. Other than that, legally, its just a conveyance like any other.

Edit - Andrew makes a good point about interest restriction favouring corporate ownership. I personally feel that as the greater return is likely to be from capital growth, and interest rates are still historically low, that its the capital taxation that is still the deciding factor.

**d000hg** · 1 September 2015, 12:47

To clarify in regard to a couple of points raised:

1)CGT in this instance refers to an increase in property value? So if the current value is roughly the same as the price I paid, this is a non-issue?

2)

It seems though that there is still 60k owing on the Mortgage. The lender won't allow the sale until they are paid off - though may be prepared to transfer mortgage to the company (at no doubt much increased rates).

The idea was the company would buy the property for cash i.e. no mortgage needed.

**ASB** · 1 September 2015, 13:01

Originally posted by d000hg View Post

To clarify in regard to a couple of points raised:

1)CGT in this instance refers to an increase in property value? So if the current value is roughly the same as the price I paid, this is a non-issue?

2)The idea was the company would buy the property for cash i.e. no mortgage needed.

1. Capital gain broadly equals the current sale price less the original purchase price less any relief that are available (main one being if it was ever your PPR). If the property is jointly owned (which does not be have to be how it is held at the land registry but ideally should match) then the gain is split across the owners in accordance with their percentage ownership. No CGT is payable until such point as total gains exceeds the approx 10k allowance. [e.g. the property could be held by you at the land registry and mortgaged solely by you but others also have an interest as tenants in common as a result of a properly executed deed of trust (which does not have to be registered at the trust office or land registry to be effective)]

2. Yes, I did read buy it for cash. What wasn't clear was what you were intending to do with the mortgage. Pay it off from the funds received by the company presumably.

It seems the net effect will be to "lose" a personally owned property. Lose 60k of debt and have some limited cash left over.

If it happens that you have a mortgage on you prime residence it seems likely this is at a higher rate and may be useful to pay this down first. This may potentially be achievable by selling part of property to the ltd and using those funds to pay down the main residential mortgage. This is more complex because of the mortagors rights. They remain as is unless the mortgagor is prepared to changed them. However it can be achieved by an appropriate deed of trust.

This may also reduce consideration and could mean stamp duty is not payable. (i.e. it might be beneficial to transfer in tranches over a few years). Though absolute lowest cost to achieve it of course may not be your motivation.

As to whether property in the company is a better idea or not that is, as mentioned, somewhat more complex and also dependant on things that are only just happening.

Sell rented property to your Ltd (for cash)