Sell existing rental properties to Ltd with large(ish) warchest - opinion please...

[craigy1874]

MVL with ER sounds great but in reality if you have a large warchest then I have been advised that HMRC could investigate the claim for ER and deny it based on the money boxing rule they are "making up".

This is floated a lot, but I can honestly say in the hundreds of MVL's I have dealt with and the thousands of Self-Assessment Tax Returns I have prepared, I have not had one enquiry on ER for a contractor company who has 'money-boxed' reserves.

[ChimpMaster]

This is floated a lot, but I can honestly say in the hundreds of MVL's I have dealt with and the thousands of Self-Assessment Tax Returns I have prepared, I have not had one enquiry on ER for a contractor company who has 'money-boxed' reserves.

Can I ask what kind of numbers you're talking about?

And is it within 12 months that HMRC would have to query the ER application?

(PM me if better)

[IR35 Avoider]

Is it actually necessary to sell the properties to the company so they can get the rent? Are there any rules against making an interest-free loan to a company you own? If not, you could lend them the properties and they could collect the rent. (Obviously get legal advice on this.)

OK on re-reading, I see that getting money out of the company is another objective, but you aren't really doing that. You are just swapping the locations of two types of "money", cash and properties, paying huge amounts of stamp duty in the process.

Assuming you do actually want cash in your own name for some reason, and not just the illusion of removing money from the company, perhaps some sort of asset swap, where the company is given the use of X value of your properties in return for you having the use of X value of the companies cash? Or the company lends you cash secured against the properties?

[Crossroads]

I've been playing with some numbers, and it is still looking like an option. The initial transaction costs to put the properties in to company and get the cash out are less than tax I would pay via MVL.

The loan I would make to my company to fund one of the purchases would be repaid via rental income over 8-10 years, and would incur less tax than if I own them personally.

Extracting the funds should I see the property is a problem if the money were to be needed in a hurry (CGT on liquidation), but could be drip fed as dividends in retirement... although my retirement planning is based on keeping them.

The potential permanent employment that might happen next year makes the scenario attractive as it would assist with minimising my income tax. On the other hand, in this scenario MVL is the simplest option.


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[Maslins]

I've been playing with some numbers, and it is still looking like an option. The initial transaction costs to put the properties in to company and get the cash out are less than tax I would pay via MVL.

My concern is you're not comparing like with like.

With the loan/company buying the properties, yes you end up with cash, but your company owns the properties.

With the MVL, you end up with both the cash and the properties in your personal ownership (please don't think I'm being biased here...if you go for it, go with whichever MVL provider you like!).

I presume we all agree that all else being equal, you personally having £100k is better than your Ltd Co having £100k? Reason being you can't do what you want with the Ltd Co's money, and if you want to spend it on something non-business, you need to suffer personal tax on it in some way to get your hands on it first. So many of the threads on this very forum are about how to get money from a company into personal hands tax efficiently. £100k in a Ltd Co is perhaps worth somewhere between £60-90k in an individual's hands due to personal taxes. I appreciate your situation is a bit more complex...but to me it still doesn't over-ride this general concept.

Perhaps we just have a different view of the Ltd Co wrapper. In your head it's good as in the medium term it's reducing the annual tax on the rental profits. In my head it's a bad thing, as you personally can't enjoy the fruits of it without incurring further tax getting it out.

[Crossroads]

I don't disagree with what you say, but I'm not looking at comparing one against the other, but more looking at my situation holistically.

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[Crossroads]

... my sums lead me to believe that I'm better off in the medium term with this option, but with the one obviously big downside... if I needed the cash urgently then that isn't a good place to be.

I would agree that in general MVL is the better route for most, it just so happens I already have the properties and the war chest so trying to make them work better for my circumstances.

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[Crossroads]

Ok, some quick sums:

MVL right now and then go permie, meaning 40% or worse, I'd retain 74% over a 10 year horizon, including sale of the properties at that point. 76% if I don't sell.

Putting them in the Ltd and liquidating in 10 years: 70%, heavily skewed towards a big bill on exit.

Putting them in a Ltd and then selling in 10 years and extracting via dividends over another 20 years(!)... 91% retention.

Putting them in a Ltd and never selling, continue to rent beyond 10 years... 86% retention, but no lump sum for me to spend.

Thanks all for your thoughts, it's not something I'm going to make any rash or uninformed decisions about and my employment status and the availability of MVL over the next year or two will be a major factor.

Ultimately MVL is probably the best if planning an exit from property but even then the ability to defer virtually all tax for 10 years (barring SDLT) for a 5% penalty is good for thought.



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[northernladuk]

Ok, some quick sums:

MVL right now and then go permie, meaning 40% or worse, I'd retain 74% over a 10 year horizon, including sale of the properties at that point. 76% if I don't sell.

Putting them in the Ltd and liquidating in 10 years: 70%, heavily skewed towards a big bill on exit.

Putting them in a Ltd and then selling in 10 years and extracting via dividends over another 20 years(!)... 91% retention.

Putting them in a Ltd and never selling, continue to rent beyond 10 years... 86% retention, but no lump sum for me to spend.

Thanks all for your thoughts, it's not something I'm going to make any rash or uninformed decisions about and my employment status and the availability of MVL over the next year or two will be a major factor.

Ultimately MVL is probably the best if planning an exit from property but even then the ability to defer virtually all tax for 10 years (barring SDLT) for a 5% penalty is good for thought.

Those sums seem far to quick to be much use to me. Can't be that simple surely.

[Crossroads]

Those sums seem far to quick to be much use to me. Can't be that simple surely.

Indeed, there are a ton of assumptions (consistent across all) and so many variables/unknowns that could change in future. I'm inclined to say the risk brought about by the complexity of putting the properties into a wrapper aren't worth it, most definitely if disposal of said property is a consideration (ever).



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