Worth transfering FHL to a limited co for cgt?

Client has small house let as FHL and plans to sell in 5 years. Should she transfer to Ltd Co now?

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My client has a small property purchased in 2009 which has been trading as a FHL since that date. The property is currently valued at £130K, purchase price £95K. Client intends to keep renting the property as a holiday let for a few more years, after which she may move into it or sell it. Currently CGT would be charged on the gain at 10%, but following the budget that would become 24%. There is no mortgage. Should my client transfer the ownership to a limited company, thus crystallising the CGT at 10% on the gain to date and resetting the base cost for future disposal. Client is retired.

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By Paul Crowley
11th Mar 2024 14:09

What would be the exit route if she chooses to live there?
If she lives there until dead no CGT
If she lets it until dead no CGT
Who came up with the clever idea?

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Ivor Windybottom
By Ivor Windybottom
11th Mar 2024 14:34

My understanding is that there is going to be anti-forestalling to (likely) prevent CGT at 10% for incorporations from Budget day until the end of the FHL regime.

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Replying to Ivor Windybottom:
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By EllaB
13th Mar 2024 12:25

Yes that's right - unless the transfer was underway prior to budget day then there is no claim to BADR.

Add in the SDLT the company will have to pay, double taxation when the property is eventually sold (CT for the company and then personal tax of some description to get the money out of the company) and it starts to look less attractive...

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Replying to Ivor Windybottom:
Morph
By kevinringer
03rd Apr 2024 12:54

Has any anti-forestalling been announced?

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By paul.benny
11th Mar 2024 15:34

Even with no anti-forestalling provisions, if Client sells property into company, they will need cash now to pay the CGT due.

Then they have their FHL profits taxable in the company and taxable when they extract them.

Ditto for any future increase in value of the property.

If, as suggested, Client chooses to live in the house rather than sell, they then have to pay rent to Company or treat their rent-free occupation as a bik. Both result in paying tax that would not be due if Client retained ownership herself.

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Replying to paul.benny:
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By Paul Crowley
13th Mar 2024 16:52

Very close to a conversation I had today with a person that just turned up unannounced. He was looking to buy the next BTL property in a company because he saw a Tik Tok on it, and was convinced. How long is a Tik Tok?

Exit route should be planned before entrance.

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By JD
13th Mar 2024 10:40

Would SDLT at 3% not be an issue?

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Replying to JD:
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By More unearned luck
13th Mar 2024 18:18

Presumably not in Wales or Scotland.

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By More unearned luck
13th Mar 2024 18:20

A copy and paste job from the Tax Fac:

Caroline Miskin, Senior Technical Manager, ICAEW Tax Faculty said “it will be interesting to see whether this change does actually encourage landlords to move to longer term lets. The change appears to be a simplification of the tax system but could result in disputes and tribunal cases over whether a lettings business constitutes a trade.

“Some landlords may wish to reconsider whether to incorporate but that is a decision that needs expert and specific tax advice. We don’t know whether MTD ITSA considerations were a factor in deciding to make this change, but it certainly simplifies the design as the quarterly filing obligations will now match the data feeds and there will not need to be a reworking if a property loses or acquires FHL status during the year.”

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