I know this probably has been covered under accounting web a numerous times but I have a client that wants to move his rental properties to a Ltd company.
I know each case depends on its merits but what is the actual mechanism of moving properties into a Ltd company. I gather some morgage companies are against moving properties into a Ltd company ?
Can someone outline the process for me ? What documents would be required ?
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Same documents ...
... that you would have on transferring the properties to anyone else. As for the tax implications, well there are a host of issues to consider - IT, CT, CGT, VAT, SDLT, IHT. You name the tax, you may have to think about it.
is it worth it?
stamp duty, conveyancing fees and capital gains tax on disposals spring to mind not to mention mortgage problems.
To answer your question directly, the mechanism to effect the transfers is to instruct a solicitor to deal with the necessary conveyances. Where there are secured borrowings the consent of the lenders will be required. If that is not forthcoming, the additional step of repaying the indebtedness before effecting the transfers will have to be inserted.
The solicitor dealing with the conveyancing would produce all the necessary documents. He or she would need to be instructed on the price to be paid by the company to the vendors, which would govern the SDLT payable, which the solicitor would also deal with.
Hope this helps.
You have not mentioned why your client wants to sell his properties to his company. What advantage does he expect to gain from doing so?
To clarify one point, John
If the company and the vendor are connected SDLT will be chargeable on the greater of open market value and consideration.
LLP
Have you thought about an LLP rather than a Ltd Co? SDLT exempt on transfer of properties as long as effective ownership remains the same before & after transfer. He can then give his sons a percentage share of the partnership in the future (there will be CGT considerations at that point)
'Hold Over' on transfer...
Deferment (‘hold over’) of a gain from individual to a company is possible but only if the transfer is of a business ‘as a going concern’ (TCGA 1992 s 162). It is questionable whether a rental business could be so described but to date no tax case has been brought specifically on this point. The exception is if the properties concerned meet the strict requirements as furnished holiday lettings which is deemed to be a business.
s162
Deferment (‘hold over’) of a gain from individual to a company is possible but only if the transfer is of a business ‘as a going concern’ (TCGA 1992 s 162). It is questionable whether a rental business could be so described but to date no tax case has been brought specifically on this point.
I suggest you Google "Elisabeth Moyne Ramsay", Jennifer :)
Err... there is case law on this
Elisabeth Moyne Ramsay was found by the Upper Tier Tribunal to have transferred a business (consisting or property rental) to her company. That doesn't make it a good idea though.
EDIT: Oops hadn't spotted the Celtic spelling of Elisabeth, Thanks BKD!
Ramsay...'going concern'
yes, Ramsay is the Tribunal case to look at here (2012). Technicality = s162 TCGA 1992 states that the business must be a 'going concern'. Ramsay did not get as far as to look at this specific point as I said in my comment.
As there had been no cases prior to this the Ramsay Tribunal started by considering whether the taxpayer activities in connection with the letting and admin of the one house (converted into 10 flats) amounted to an investment activity or whether those activities were sufficient to constitute a business. If they had been deemed a business then the Tribunal would have had to consider whether the business was a 'going concern'.
But the Tribunal did not get that far.
The term 'business' is not defined in CGT law so they had to look at general case law for assistance in their task.(e.g American Leaf 1978); Rashid (2003), even a BRP case Horsfall (1995).
The Tribunal decided that the activities carried out by Ramsay were 'normal and incidental to the owning of an investment property' and dismissed the case.
It was interesting that the SP's described the case as being 'border line' - I wonder whether they would have reached a different conclusion if there had been 10 flats at different locations.The Ramsays listed what the 'activities' were but this case proves that there needs to be a lot done for the 'activities' to constitute a business.
Personally I think the result was a little harsh but the Ramsays are not going to appeal so until someone else tries ...
Jennifer ...
... I suggest that you look instead at the decision of the Upper Tier Tribunal :)
EDIT - despite my ability to distinguish a 'z' from an 's', I didn't spot Steve's comment above :)
EDIT 2 - posted at same time as Steve's below :)
Sorry Jennifer...
... but whilst Mrs Moyne Ramsay lost at the FTT (in 2012), she won at the UTT (in 2013). S. 162 was held to apply to her transfer.
EDIT: @BKD I wish you wouldn't keep doing that! :)
BUY TO LET PROPERTIES TO LIMITED COMPANY QUERY
Hi Everyone, hope someone can help. I have a couple of clients who have a portfolio of houses between them . They have set up a limited company between them and have transferred the properties into the Limited Company via a trust agreement making the company the beneficiary. The properties are still in their own names plus the mortgages. I am not sure how to deal with this to be honest. The rental income and associated costs are going through the limited company and the clients are saying that that the properties and mortgages need to go onto the balance sheet. I don't think so to be honest how can they? Has anyone any thoughts??