My client has approximately 20 residential he lets and is looking to incorporate.
Having not walked a client through the process before I was wondering if anybody has already been through the situation and whether they advised HMRC before or during the incorporation. I was also wondering what the pitfalls may be, if any. My client is an active landlord and has advised that he spends between 25 to 30 hours per week managing the portfolio so from what I have read, there appears to be no issue with it being a "business".
PM's would be welcomed as I may employ assistance.
Thanks in advance.
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Replies (18)
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The rather predictable answer on whether you should write to HMRC for non-statutory clearance is "it depends". (The short answer is that you should not seek clearance in the 1st place unless you are very confident of getting it.)
In all cases where I have sought clearance it has been obtained.
You can contact me at the link below if you need help (the SDLT issues are probably more relevant in your client's case than the CGT issues and any loans obviously need to be dealt with with some care - search this forum for discussion re all that).
The short answer is that you should not seek clearance in the 1st place unless you are very confident of getting it.
Which then makes it an utterly pointless exercise.
Why seek clearance if it's not required and you already know what you're doing is allowable? What benefit do you get?
Indeed. See: https://www.accountingweb.co.uk/tax/hmrc-policy/hmrc-karate-partnership-...
Needless to say, a formal GP agreement etc. or LLP would be a good idea.
It looks like a fairly straightforward case for s162. But certainly worth going for clearance (the HMRC clearance letter may help in his re-mortgaging discussions).
As others have said - there'll also be SDLT issues, but there may be something you can do with a partnership and you can apply for a separate SDLT clearance.
OK - hope I'm not going to get shot down in flames.
If you can get the HMRC s162 clearance for incorporating as a partnership (partnership possibly initiated by transferring a small percentage of your property ownerships to a spouse so no/minimal SDLT triggered at that point). Send copies of the correspondence to the SDLT clearance guys and ask them to confirm that this incorporation of the partnership won't give rise to an SDLT charge.
Its always worked for me.
Wait. What?
So we're going to ask HMRC for clearance that they consider what we have is a business (clearly indicating that we're after incorporation relief), wack the whole thing into a (possibly fictional) partnership, ask for clearance to transfer our partnership business into a company without any SDLT (which there wouldn't be anyway, unless s 75A operates), and then wack it into a company, send the client a bill, and run like Forest Gump at 16x?
Really?
And what are we doing about the finance? Are we raising new finance in the company that the company's going to give the partnership, so that the artnership can repay it's borrowing?
Are we?
Nothing necessarily fictional about the partnership - SA400/401s all done.
It is certainly a lot cleaner if you have current joint ownership of property that you change into a partnership. The s162 is requested for the partnership.
And not running away from the client - doing all of this with a past, current and future client and talking through the process/refinancing with the current/alternative lender.
Whether there is a partnership or a jointly owned investment is a matter of fact. The submission to HMRC of forms SA400 and SA401 is not one of those facts.
How are you going to transfer the properties into the company? You need to consider the CGT implications. There may be legal costs for transferring the legal title and don't forget to ensure you transfer the property at a fair value.