Property let partnership between limited company and individual

Property let partnership between limited...

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A client and her sister are being gifted some residential rental properties by a parent. Our client already has a property rental limited company, but the sister doesn't have one and doesn't really need one.

Presumably it's alright to have joint ownership between a limited company and an individual?

It isn't practical to have one person owning two properties outright and the other three owned outright by the other person.

Will a bank set up a joint bank account in this situation?

What about leases - presumably these can be written with the landlord being jointly limited and individual?

Any other practicalities to consider in this case?

Thanks

Replies (4)

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By Montrose
23rd Dec 2015 10:14

Joint ownership is not necessarily a partnership.

Is the proposed  gift to your client, or to his company?

Technically there is no problem in  properties being owned by two persons, one individual and one company. Is the joint ownership intended to be a tenancy in common-it will be by default [subject to legal advice to the contrary] where the joint owner is a body corporate ?

Property partnerships are not that common. and have some unexpected tax consequences as profits and losses are ring fenced [See ITTOIA s859(2)].

There is also a minor anomaly for IHT where the instalment option is applied. A property owning partnership [not an LLP]  as opposed to joint ownership qualifies for IHT as a 'business' under s234(1)(a) ,so that neither s233 nor s.234(2)  applies. In simple English, that means that interest on instalments runs only from the due date of each instalment, not from the original due date following the  death. That could encourage your client to hold his share of the gifted properties personally and for a formal partnership rather than mere joint ownership to be established.

A gift to a limited company where the donor is connected to the company is not exempt from SDLT [FA 2000s119]. 'Connected' is as defined in CTA 2010 s1122.

 No doubt you have considered the CGT and IHT aspects of the proposed gift by the parents, as you have not mentioned these as giving you any concern. You make no mention of any mortgage being in place-that could complicate matters further.

Your client's existing company could administer the partnership[ or jointly owned property] if brother and sister are comfortable with that.

 

 

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By newmoon
04th Jan 2016 15:07

The clients have decided to set up a 50:50 limited company.

Montrose.

Happy New Year to you and that you for your detailed advice given before Christmas.

Both the recipients of the gift from the parent have decided to set up a new 50:50 owned limited company to hold the property. That eliminates my initial concern, though your answer raises further questions!

There isn't any mortgage or borrowing on the properties.

What I don't know at the moment is what the parent's base cost is for the properties. They were originally owned by the deceased husband, but I don't think they were inherited directly, but via a settlement with a child of the deceased husband from a previous marriage. I'm not sure if this was a variation of the will or a subsequent settlement. I've asked for details.

The plan at the moment is for the properties to be gifted direct to the limited company.  So a gift without mortgage to individuals will not give rise to SDLT, but to a company will do https://www.gov.uk/guidance/sdlt-transferring-ownership-of-land-or-property

 

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By Lady Carrera
04th Jan 2016 15:27

You needed to know who actually currently owns the property, and on what basis before offering any advice on this.

A gift to a company from an individual who has no interest in the company is a CLT for IHT purposes, as well as being a deemed market value transfer for SDLT purposes.

If the gift goes to the individuals, then the individuals can immediately sell the property to the company for market value, without increasing the amount of SDLT due, and have a loan balance from which they can subsequently draw, rather than having to take dividends.

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Replying to Tax Dragon:
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By newmoon
04th Jan 2016 15:46

Thank you for the advice

Lady Carrera wrote:

You needed to know who actually currently owns the property, and on what basis before offering any advice on this.

A gift to a company from an individual who has no interest in the company is a CLT for IHT purposes, as well as being a deemed market value transfer for SDLT purposes.

If the gift goes to the individuals, then the individuals can immediately sell the property to the company for market value, without increasing the amount of SDLT due, and have a loan balance from which they can subsequently draw, rather than having to take dividends.

Lady Carrera

Thank you and Happy New Year to you also.

Yes I agree, if the property gifted to the individuals first, then no SDLT on that transaction but there is when the individuals transfer to the company. So whichever way there is only one lot of SDLT payable. 

IHT is not my field, but what you are saying is that IHT would  actually crystalise as a Chargeable Lifetime Transfer if the gift is to the company, so everything stacks up to a gift to the individuals first, who then sell at market value to the limited company.

The downside being two conveyances.

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