Selling own home to ltd co

[georgeg]

Hello All,

End of fiscal year is coming fast, along with the +3% stamp duty on second homes / BTL properties.

I have been looking for a new property to buy for some time now, but supply has been quite limited in the area that I am looking. The plan was to buy a bigger house to move in and then rent the property I currently own.

I have been toying with the idea of:
1. My ltd makes a cash purchase of the house I currently own (let's call it "old" property).
2. Purchase the new property on a mortgage as if it would be the only property owned by me.
3. Stay in old property while the new is getting refurbished (pay appropriate rent to ltd).
4. Rent out the "old" property until appropriate to sell it on.

Notes:
1. Old property is comfortably less than the incoming £500k ATED threshold.
2. The stamp duty to be paid by the ltd for the purchase of the old property would be in the range of 2.5k-3.5k depending on the valuation of the old property. This is significantly less than the extra 3% of the stamp duty for the new property in the new fiscal year.

If I understand the current rules as well as the new changes correctly the benefits would be to:
1. No need to pay the extra 3% stamp duty on the purchase of the new property
2. A bit more flexibility with the mortgage with the new property (more effective utilisation of the cash sitting in the ltd bank account e.g. using an offset mortgage)
3. Use ltd cash for repairs on old house (needed before rental) - Would this cost offset the CGT of the later sale of the property?
4. Potential use of Entrepreneur’s Relief, assuming house is sold before any changes in that area.

Am I missing anything?

Regards
GeorgeG

[Kenny@MyAccountantFriend]

A house would make the company an investment company and therefore ER could not be applied when closing the company.

Cost on improvements would be capital and of set when selling not against rental income if prior to renting out the house.

May also need to look into 3xpected changes for ER if looking to close company and open a new one (although not mentioned above).

[georgeg]

Hello Kenny,

Thanks for that little detail on the ER... However I got a question on that. Would the company be classed as an investment company even if the majority of the trading income is coming from non-rental activity? Or, is the classification based on the value asset vs trading income?

Not too worried about closing down, as new company which is more of a product based (rather than mainly services) is already on track.

Regards,
GeorgeG

[TheFaQQer]

Hello Kenny,

Thanks for that little detail on the ER... However I got a question on that. Would the company be classed as an investment company even if the majority of the trading income is coming from non-rental activity? Or, is the classification based on the value asset vs trading income?

Not too worried about closing down, as new company which is more of a product based (rather than mainly services) is already on track.

Regards,
GeorgeG

A poster last year (might not have been on CUK) was told by HMRC that they couldn't claim ER because they had a fixed-term interest account with Aldermore. A house would be much more of an investment than that.

[borderreiver]

Am I missing anything?

You lose your house if a client successfully sues YourCo?

[TheFaQQer]

You lose your house if a client successfully sues YourCo?

Plus you now have a substantial asset in the company if HMRC come calling and you lose.

[pr1]

You lose your house if a client successfully sues YourCo?

PI insurance

[borderreiver]

PI insurance

Better hope it covers the maximum conceivable claim against YourCo then. Because if not ...

Seriously, the whole point of limited liability is to make sure your personal assets cannot be seized in cases like this. To put your own house into your company is madness.

[ChimpMaster]

Briefly....

CGT will be payable when you sell the property to your Ltd.

If I remember correctly, your Ltd Co and you are not seen as different when it comes to the additional stamp duty.

You might be better off setting up a new company for the BTLs, but there are a number of things to look out for here.

Avoiding the stamp duty surcharge will not be easy. It might be best to wait a while, let the demand for investment homes come down a bit and then negotiate a 3% discount on your target price for your 2nd home.

[georgeg]

Hello,

Thank you all for your input so far.

I've been very busy with work and didn't have a chance to catch up on this.

The "old" property is currently my main home, however I intend to move on to a new one, and the "old" one will be rented until the right moment to sell on. That is the point where I was thinking of leveraging ER.

For litigation I have PI, however liability clause on every contract is up to the value of the signed contract so, not too worried about that.

TheFaQQer - HMRC might come calling, but I work with the assumption that. I have my accounts and all affairs clean, hence, not worried on that either. Unless if this house purchase would be seen as foul play by HMRC.

borderreiver - The whole idea of selling the house to the company is to allow me to mobilize the ltd cash reserves for the purchase of a new personal home. The existing "old" house was always destined for sale. It will be sold again by the company in the near future, when the right opportunity turns up. You could see that as protecting the company reserves (assuming that the house prices continue to trend upwards, beating inflation, while the house is owned by the ltd).

ChimpMaster - CGT will be 0 when I sell the house to the ltd, because I live in it ever since I bought it.

If I remember correctly, your Ltd Co and you are not seen as different when it comes to the additional stamp duty.

Do you have any reference where this is stated? It would be very useful.

Thanks again,
George