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Flat transferred to a limited company

Can this client claim a refund of the 3% stamp duty?

A client with a flat which was his main residence for several years is going to buy a house which will become his main residence. He will rent out the flat and accepts that he will have to pay the additional 3% stamp duty on his new home. 

However, if he transfers ownership of his flat to a NewCo will that be sufficient in order to apply for a refund of the 3% stamp duty that he will pay on his new house? 

I appreciate that the company will have to pay an extra 3% SDLT  on the flat; but this will be considerably less than the extra 3% SDLT that he has to pay on his new house.  

Readers views will be much appreciated

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23rd Feb 2018 17:18

I dont think many people will bother to comment on this

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23rd Feb 2018 18:02

Yes. It has been stated before on this website that that works (although there may be simpler solutions in this case).

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23rd Feb 2018 18:14

I’m about to do something very similar myself.

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23rd Feb 2018 18:56

Hi there,

Yes you're correct in what you're saying. However make sure you consider other taxes.

1. Upon sale of the flat, your client won't be entitled to the annual exemption on the sale (unless he transfers it back to himself and incurs stamp duty again).

2. If he's renting it out he will pay corporation tax, and then likely dividend tax (as I'm assuming within the next couple of years the dividend allowance will be gone). Although you could in theory give them a salary up to 8k (BR code) and potentially avoid most (if not all dividend tax).

3. If there was a substantial gain on the property, you will have to vote a dividend to get the money out the company.

Don't forget the extra accountancy fees he'll be incurring for all those years than for having a limited company.

I'm not saying don't do it, but make sure you consider ALL taxes.

Regards,

John

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23rd Feb 2018 19:00

Sure he is not going to get whacked with a lot more CGT on the flat when he eventually sells vs keeping in his own name?

I guess it depends how expensive the house is, but I would be surprised if it was worth it in the long term.

You really should do some detailed modelling, you may be surprised by the results once PPR relief and lettings relief kick in vs the CGT in a company + cost of extraction now indexation is abolished.

Edited to add: post at same time as John who makes similar points. Letting relief is really quite powerful.

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23rd Feb 2018 19:09

I'd actually missed the part about PPR and letting relief.

Obviously it all depends on figures but I think it may well end up being more expensive in the long term to transfer the flat into a company.

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24th Feb 2018 17:43

How about selling the flat to a company majority owned by his children[with non voting shares]-he keeps voting control, and leaves the consideration outstanding as a loan?

Now company pays only CT rates, and he draws post CT profits by way of partial loan repayment.

If he is a higher rate tax payer the annual tax savings will quickly recoup the 3% SDLT charge, so boosting his cash flow

Children will pay CGT in the very long run on retained profits, but no IHT on the same figure

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