Purchasing already owned buy-to-let flats through contracting Ltd

[fly101]

Hi

I've been contracting a few years and have built up about 150k of capital in my company Ltd account.

I also own a small portfolio of buy to let flats each with a value of about 100k in my own name. They're all on b2l mortgages with 75% loan-to-value.

What are the implications of selling these properties to my company? On the face of it, it's a win-win, since I can get some of the capital out of the business, and avoid some of the incoming tax changes to landlords. Is there anything I haven't considered?

I'd expect to buy them over the course of the next 4 years, one at a time. I'd buy each one outright, then mortgage it 6 months later to build up more funds to buy the next one outright, and so on.

Sage ideas, please??

[northernladuk]

Not worth running property through the LTD for the most part. Been discussed many time and reasons why documented. Have a look at the search method as described in the sticky in the FAQ section. Many different scenarios have been proposed and from memory none were efficient. I'd say you do need to think about it a little more if all you can see is the win of releasing capital. Think along the lines of business mortgages, tax implications during the term and releasing the assets in the future etc.

[fly101]

Tax changes on buy to lets will be changing. I think it is beneficial to have my portfolio in a ltd company structure now. I currently own 7 properties, I intend to expand to 10 in the next few years.

Brief explanation - tax relief on buy to let mortgage interest is going to be capped at 20%. Essentially we will be taxed on turnover, not profit. This can be mitigated by putting property within a limited company, then we are taxed on profits. Furthermore I intend to grow the portfolio within the company and long term transition my own career into this field. I want to be in this business with a ltd form, plus tax benefits, plus getting out the capital.

[ChimpMaster]

Hi

I've been contracting a few years and have built up about 150k of capital in my company Ltd account.

I also own a small portfolio of buy to let flats each with a value of about 100k in my own name. They're all on b2l mortgages with 75% loan-to-value.

What are the implications of selling these properties to my company? On the face of it, it's a win-win, since I can get some of the capital out of the business, and avoid some of the incoming tax changes to landlords. Is there anything I haven't considered?

I'd expect to buy them over the course of the next 4 years, one at a time. I'd buy each one outright, then mortgage it 6 months later to build up more funds to buy the next one outright, and so on.

Sage ideas, please??

Not sure about mixing your IT and Property businesses into the same company - you had better ask a qualified person about that. You might need 2 separate companies with loans from your IT Co to the Property Co - but bearing in mind the Associated Companies trap.

As for selling your personally owned BTLs into the Ltd Co, yes of course you can do that but the transaction will have to be at market price and hence you will be liable for CGT and SDLT. It doesn't sound like you will benefit from Incorporation Relief because really the BTLs aren't a business for you (another Ramsay case worth reading up on)

In re-mortgaging within the Ltd Co, you would have to apply for Commercial mortgages, which have higher arrangement fees and interest rates than BTL mortgages. The market will no doubt change as lenders adapt to Osbourne's tax rape, but again anyone's guess is simply that - a guess, at this stage.

The question then becomes, is there any financial advantage in doing this?

Recent changes to the BTL taxation have had many rushing into considering options such as moving them into Ltd Company structures, but some have correctly pointed out that the Chancellor will simply hit these next (well, he already is...).

A better plan might be to pay down the loans on your the flats, so as to partly negate the impact of interest relief changes being phased in. It depends on what your long term objective is for the properties, but I note that the game has changed and it is unlikely for the Chancellor to leave any option open for the average man to make a decent income for himself.

[philip@wellwoodhoyle]

Main thing is do you understand the potential double taxation when the time comes to sell your properties and close down your company. I.e. company pays corporation tax on the profit made on each house sold and then you pay personal capital gains tax on the same profits when you draw them out of the company.

To avoid double tax, you effectively have to leave the profits in the company forever. Obviously, fine if your long term plan is to keep the properties and then pass them/the company over to your dependants upon your death, but that's quite drastic tax planning - i.e. to die in order to avoid the tax !!

And as others have mentioned above, legal and stamp duty on putting them into the company, costs of redeeming existing mortgages, additional costs/interest of getting a commercial mortgage instead of personal BTL mortgage - quite a lot of cons to weigh against the pros.

[northernladuk]

I've a feeling the OP has already made his mind up and is only looking for one answer.

[fly101]

Stamp duty - nearly all of my buy to lets are 100-150k, so stamp duty will be nominal or zero.

CGT - I plan to stage the sales over the next 3 years. I don't think there have been large capital gains, although this is a consideration.

Mortgages for a limited company are not massively more expensive than for an individual at this moment. Obviously this is an unknown but I'm aware of the risk. If anything I expect the margin to reduce as the tax changes are phased in.

As I've mentioned already I intend for this to be a new career once the niche work I do contracting in just now dries up over the next few years. By then I basically intend to retire early and run the company as a property investment / managing concern until I am no longer able.

[fly101]

I've a feeling the OP has already made his mind up and is only looking for one answer.

I'd certainly like to know if there is any precedent for this, or else any show-stopping impediment.

Otherwise, for my own circumstances only, I think it could work for my intention of departing contracting and simply running and expanding my portfolio and using that to draw an income indefinitely.

I appreciate the comments and viewpoints. Of course I will consider them and go whichever way I believe is most efficient.

[BlasterBates]

I would advise a separate company.

Not a good idea to mix two completely separate businesses.

[BolshieBastard]

I would advise a separate company.

Not a good idea to mix two completely separate businesses.

Sorry but absolute nonsense. I ran IT and a separate retail operation through one limited. Didnt cause any problems for the accountant, HMRC or admin.

As has been posted, the OP only wants one answer but WTF he doesnt ask his accountant for this instead of a bunch of strangers on the net **** only knows!