Transferring a house into a limited company

lots of pitfalls

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My client owns a house worth c £500k, which is currently his only home (house 1).

He is looking to buy a much more expensive house (house 2) in a different area, which will become his main home, but wants to keep house 1 as a holiday home/FHL/investment etc etc.

So obviously this will trigger the 3% stamp duty surcharge on house 2, which will be a significant cost.

His "plan" is to transfer house number 1 into a limited company - which he accepts will lead to stamp duty, including a 3% surcharge, and then he will be able to buy the new house as his only residence so no 3% surcharge. 

Stamp duty is not my bag, but is this right?  Or will he still have to pay the 3% on house no 2 due to ownership of house no 1 via a company which he and his wife own?  I have told him to check this point with a solicitor but just wondering if anyone knew.

I know there are a raft of other issues as well which he needs to be aware of - not least ATED, and BIKs as I am pretty sure he will still use house no 1 as a holiday home.  there would be no cgt on transfer of house no 1 as it has been his PPR since he acquired it. If anyone can think of any other reasons why this is not a great idea I would welcome your input!

Thanks

Replies (5)

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By Paul Crowley
13th Jan 2022 09:54

Is this driven solely by the attempt to save 3% on the difference in prices on the the two houses?
If so then a daft idea
Prepare the costs from now for 10 years with am exit plan of selling house one and taking out the dividends or CGT and winding up costs

Or is the plan to give the company away bit by bit?

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By The Dullard
13th Jan 2022 09:59

If you think that the ATED charge will apply (which I agree with, if the value of house 1 is >£500K), then the rate of SDLT on transfer to the company is a flat 15%. FA 2003, s 55A and Sch 4A.

Then there's ATED. You'll get a full year's charge for just a day's occupation by a non-qualifying individual (broadly the company owner and their relatives). That applies to the year of such occupation and for the 3 years subsequent to any such occupation. FA 2013, s 135 (which is nasty).

BIK, as you rightly say.

No CGT going in, but what happens if you want to get it out? And if all of the income is extracted as dividends, then the effective income tax rate on that income will be higher than if it were held personally.

Save for the issues in the last paragraph, if it will not be used by the individual or his family AT ALL, then the plan will work though. But Paul Crowley still won't like it. :)

EDIT: Posted before I'd even seen Paul's reply!

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Replying to The Dullard:
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By Bobbo
13th Jan 2022 10:43

sounds like the client's genius plan will result in them paying almost every tax that exists - i love their commitment to supporting the HMRC coffers

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Replying to The Dullard:
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By Paul Crowley
13th Jan 2022 12:11

Much appreciated and so much more detailed than my attempt

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By Bacc
13th Jan 2022 14:08

Also if there is a mortgage on house 1 - then the change from him personally into a limited company could mean that the interest rate increases.

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