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

[Crossroads]

I've read most of the threads on here around B2L/Ltd ownership, and just musing over the following approach and would appreciate people's opinions.

Background:
- I have a number of rental properties that are owned outright and through a combination of PPR and Lettings Relief currently would not be subject to any CGT if I sold them.
- I have a surplus of funds in my Ltd Company.
- I currently live off the rental income and small salary & dividends, keeping my total income below the higher rate threshold.
- There is a possibility (not certain at all) of a permanent role on the horizon. Combined with my rental income this would likely see a chunk of my overall income in the £100-£120k bracket, therefore paying an effective 60% IIRC on that slice.

An Approach:
1. Sell Property 1 to my company at market value (£350k). £18k SDLT + legal fees. £350k to me.
2. I then lend my company a sum of money (probably around £150k), and my company uses this to purchase Property 2 from me at £175k. £6.25k SDLT.
3. Ltd company uses remaining retained profit and future rental income to repay the loan.
4. Some years down the line and the loan is repaid I can extract rental income via dividends (likely to be retired at this point, so Higher Rate tax not an issue), or sell another property to the company to create another loan.
5. Yet further down the line, I or my kids will have the problem of selling the houses and getting the cash out in an efficient manner, but who knows what will happen that far away.

Depending on whether I am still contracting I'll need to use this / a different Ltd for that / an SPV for the property ownership etc, but that is (possibly) a different discussion.

From what I can tell, the above would enable me to extract cash from my Ltd in a tax fee manner (£525k eventually) however there would be something like £25k of SDLT and legal fees to pay. Things get more complicated when CGT comes into play, but that's a different fag packet.

What am I missing? When Komrade gets in at No10 I'm screwed whatever as a Ltd Company running, warchest possessing, slum landlord but under current legislation have I missed something obvious?.

Otherwise I guess it is crack on with Plan A: Keep the property owned personally, continue to build the warchest until I retire and then extract the funds by whatever means is best (MVL if still possible, otherwise just draw down over many years).

[Lance]

for that amount of money, and subsequent risk associated with it, I'd seek specialist advice.
You say that higher rate tax rate isn't an issue when you're retired. That's not entirely true although I think you just mean that won't have your full time job any more.

Given that you'll be looking at a pension 'pot' of upwards of £500k you might want to consider other options. Like putting £40k a year into a pension fund that you can access easier (after 55) with less running costs.
It all depends what you see yourself doing when you retire. And for that reason I suggest a specialist as it's not that easy as there are lots of other options.

[Dom at Fox Bartfield]

Property SPV

Definitely worth a sit down with your accountant to run through a specific plan around this. Could be a good opportunity to get the properties into an SPV with no CGT but worthwhile running through the figures with a plan of action with your accountant.

How many properties are we talking about, and the net rents?

[Crossroads]

Thanks.

for that amount of money, and subsequent risk associated with it, I'd seek specialist advice.

Most definitely, if the idea has legs I'll be seeking expert advice.

You say that higher rate tax rate isn't an issue when you're retired. That's not entirely true although I think you just mean that won't have your full time job any more.

Exactly that... and actually it will be an issue, but a manageable one in comparison to now.

Given that you'll be looking at a pension 'pot' of upwards of £500k you might want to consider other options. Like putting £40k a year into a pension fund that you can access easier (after 55) with less running costs.

Definitely - I have a smallish pension but despite the CT advantage I struggle with the "locked away" nature of the pension wrapper.

[Maslins]

To my mind the cons (mainly stamp duty now, and potentially again a bit later if/when properties extracted from Ltd Co) dwarf the benefits.

Yes owning them personally now whilst having a big salary will push income into high personal tax rates...but you can offset this to some extent with personal pension contributions, gift aid donations, or perhaps things like EIS investments.

Perhaps another appeal is that at the moment you have investments whilst your company has cash, and this plan swaps those around (ie more cash in your hands now to do with as you see fit). However to me an MVL when the time comes, assuming tax rules remain broadly the same, would be a more sensible route. That way you'll have the investments and the cash, and have paid just 10% tax on the cash. With your suggestion ok there's no tax to get the cash (as it's buying properties at fair market value), but then you've got half a million quids worth of property in the company...so tax considerations (even ignoring stamp duty) if/when you want to pull them out.

I dunno...I don't really get the current desire by so many to put properties within a Ltd Co.

[Lance]

Definitely - I have a smallish pension but despite the CT advantage I struggle with the "locked away" nature of the pension wrapper.

It's not locked away once you reach 55 years now. Thank you George Osbourne for that.

25% of it is tax free. If you have £500k you can get £125k as a tax free 55th birthday present. And take the rest as you desire.

[simes]

I have some properties personally owned, and some in the LtdCo.

At the time, it was easier to pop a deposit down from within the LtdCo so as not to incur Income Tax which at that time would have been at the 40% level of things. At the end of the day, I daresay no one really has the answers to all things tax 20 years down the line so for my part, it is just a case of eggs in slightly different baskets.

Crossroads queries his kids' ability to sell the flats later, if still within a LtdCo structure. I wondered about this too and wonder if one could just sell the company lock stock and barrel?? I have not investigated but it might be a mitigating answer to individual sales followed by LtdCo dissolution. Maybe.

[Crossroads]

Crossroads queries his kids' ability to sell the flats later, if still within a LtdCo structure. I wondered about this too and wonder if one could just sell the company lock stock and barrel?? I have not investigated but it might be a mitigating answer to individual sales followed by LtdCo dissolution. Maybe.

Certainly an option, but a tiny market compared to general residential of course. You do occasionally see such advertised on Rightmove and I suspect if you were looking to build a property portfolio this way then local EA's would know of landlords who might be looking to sell.

Otherwise it would just be a standard sale and then a case of extracting the funds from the company... and probably with MVL not being an option.

[craigy1874]

Otherwise it would just be a standard sale and then a case of extracting the funds from the company... and probably with MVL not being an option.

MVL would still be an option, it's just that you couldn't claim entrepreneur's relief.

However 28% CGT is still better than 32.5% + on dividends.

[ChimpMaster]

Yes as Craig says CGT is 28% and so you need to account for that on top of the SDLT you're paying, when you're selling the properties to your company.

If it is just SLDT - i.e. you have no or little CGT - then it's not a bad plan.

I am considering a number of similar options.

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".

Otherwise I have looked into changing my IT Co into a Property Co (when I retire from IT) and using all reserves to invest in properties or other investments. This is also feasible and simple enough from what I gather. Of course, any funds extracted from the (now) Property Co will be taxable as usual, so it's all above board.