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Rental Property Company

My client has a growing portfolio of property. Currently stands at £600K (a new purchase going through to bring that up to £750K). The properties are mortgage free. 

Although he has no other income he has considered transferring them to a limited company. 

Question is if we were to transfer the portfolio to a limited company wholly in exchange for shares could we hold over the gain as part of incorporation relief?

Once the property is a limited company and trading for one year we are able to then place a floating charge over the portfolio (not exceeding 50%) and build his company's net wealth more easily.

Extraction of profit is of little concern as he requires no more income than £30k per annum (mortgage free property of £550K).

Based on transfer value's he will obviously be liable to SDLT 

His aim is to manage a portfolio not simply provide an income and wind it down at retirement. 

Many thanks

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This would not work as you are not transfering across a business, but a property rental portfolio

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S162

I do not wholly agree with Arthur's comment. Tax advisers have generally been of the view that a sufficiently large portfolio constitutes a business for s162 purposes. What is sufficiently large is more debatable and probably depends on the amount of work involved in managing it. However, this view has been put into doubt by the FTT decision in Ramsay earlier this year. In this case the judge suggested that no portfolio, however large, was sufficient for s162 if there was no more activity than that associated with property rental. Some think the decision was poor and I understand that an appeal has been lodged.

You don't say how many properties you have. At £600k total value it was likely to be borderline even before Ramsay.

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Have a management company instead?

Save all the hassle of transferring the properties, loss of annual exemption and lower tax rate - just let management company manage - the company rents at a market rate, slices a % off the profit, which is retained within the company - reduces personal tax etc....just a thought.

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Property company

Justsotax's comment reminded me of another thought. I have wondered whether an individual could grant a tenancy at will (no SDLT) to a company for nil (or reduced) rent and the company then let the property as landlord, i.e. a sublease. My concern is a property law issue as to whether the company can grant a sub-lease when it only holds a tenancy at will. Any property lawyers out there?

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