Transfer of BTL properties over to a Ltd. Company

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There is a client who owns buy to let properties in his personal name. He is looking to transfer these properties in the near future into a limited company. There will be capital gains tax and stamp duty to pay on transfer of these properties over to the company. However the client wants to transfer these properties to the limited company in a piecemeal fashion, say 20%, each year, over 5 yrs. The idea behind this transaction is to ensure that the client does not get trapped into the higher rate of taxes when the mortgage interest from 2020 is allowed only at 20%. I appreciate he will have to get past his mortgage provider to enable him to carry out the transfer to the Ltd Co (which may even not be possible as the new Ltd Co will not have a history of any rental income). However, once he transfer part share every yr to a Ltd Company will he be required to complete and forward to the HMRC a Declaration of Trust within 60 days of the transfer?

However I am aware that this piecemeal/percentage transfer of properties is mostly used, as an example, by parents who wants to transfer their properties over to their children over a period of time as a tax planning measure. In this regard, would the client above, be allowed to transfer his buy to let properties over to the limited company in this piecemeal fashion on a percentage basis? If so, what other issues should be considered before the transfer (apart from the CGT & SDLT implications)?

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paddle steamer
By DJKL
24th Mar 2017 12:33

Good luck with that if a mortgage lender/ bank involved, what do you envision, loan to individual and loan to company over different parts of same property and a ranking agreement?

You say properties, could he not make things simpler, say do one whole property each year until they are all switched?

In addition have you calculated likely payback period re tax edge (if any) to overcome the frictional costs re moving the properties?

No option to take the incorporation route I suppose?

Given legislation can change in future not sure I would consider anything that radical with such frictional costs without a very robust business case-does he have one or is this knee jerk whim?

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By Tosie
17th Apr 2017 15:29

Have you considered whether or not your client qualifies for S.162 relief.
Obviously depends on the number of properties and extent of his involvement in running the business.

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By SteveHa
18th Apr 2017 09:31

There's a school of thought that suggests that he can transfer the beneficial interest whilst retaining the legal ownership personally, thus circumventing any problems with the lender (and of course, the lender can still pursue him and repossess in the event of default).

However, having read the detail of this "plan", I am not personally convinced that it works, and could be wide open to challenge.

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