Gifting BTL to a company

[jigjay]

Hello Everyone,

My 59 year old mother (father deceased) , owns 3 BTL properties with no mortgages. When she turns 63 she plans to gift me one of her BTLs and most of her savings(as PETs). I am aware that this will generate a CGT liability for the BTL.

After this her estate will be below the inheritence tax threshold(she inhertited my father's full unused allowance when he passed away). She will then continue to give me gifts out of excess income (most of her income being the rent from the 2 remaining BTLs) until she passes away.

My question is- Due to the recent tax changes on BTLs - will it be better for me to set up a Ltd company for the BTLs that she passes on to me? (I am a higher rate tax payer due to my job)

Is it possible to "gift" a property to a Ltd company that has been set up for BTL.

Also, when she passes away and the remaining 2 BTLs are passed on - is it possible to pass on BTLs to a company upon your death? Ie if she puts this in her will?

Many Thanks for your help

JigJay

[SteLacca]

The most significant change is restriction of relief for mortgage interest to 20%. Since there is no borrowing on the property then this is a non-issue, and certainly provides no incentive to incorporate a company to envelope the property.

And in fact, their could be further disadvantages depending on the value of the property (I assume that it's residential) in that if it exceeds the de-minimis, the company will become liable for the Annual Tax on Enveloped Dwellings (ATED) on a sliding scale based on the value of the property.

Your being HR does not help matters. To extract profits from the company you would do so as either salary or dividend, and pay tax at either 40% or 32.5%. This on top of the 20% corporation tax already paid.

[GlobalTaxAdviser]

I am seeing many landlords jumping to set up a limited company even with a couple of properties just to save interest even it maybe take a long long time to recover the additional interest costs

While you would need to do the calculations to see if the benefits outweigh the costs in the longer term including scenario's of interest rates increases which are inevitable in the long term (and maybe even in short term)

There is a lot more to this than meets the eyes and you will have to consider four taxes as well as other costs e.g legal, accountancy etc

[jigjay]

That's great advice.

I will seek professional advice on whether to incorporate or not.

Does anyone know though if you can gift to a potential BTL company, and also if you can pass a properrty in your will to a BTL company?

Thanks

[GlobalTaxAdviser]

Hi

You can transfer a properies to a Limited company but there still will be CGT and Stamp duty to consider

Kind Regards

GTA

[jigjay]

Hi

You can transfer a properies to a Limited company but there still will be CGT and Stamp duty to consider

Kind Regards

GTA

Hi

Sorry to bring this up again, but I have a couple of things that I would like to clarify:

1) My understanding is that if you gift a property (with no mortgage) to an individual, that although you will have to pay CGT, the person receiving the gift does not have to pay stamp duty(I know IHT would be payable if the gift giver passed away within 7 years). Is this also the case if a Ltd Company receives the gift - ie no stamp duty payable?

2) My understanding is that if you leave a property to someone in your will, that neither CGT or Stamp duty are applicable (only inheritance tax if above the threshold ). So can you leave a property to a Ltd Company in your will, and if so are any taxes other than IHT applicable?

The reason that I am asking is that I am thinking about investing in properties over the long term within a Ltd Company structure, and I am wondering whether my widowed mother should pass her BTLs to myself or my company upon death.

TIA

JigJay

[GlobalTaxAdviser]

Hi

Yes you are correct in both questions.

Kind Regards

GTA

[bd6759]

A transfer to a connected company is deemed to be at market value, so SDLT could be payable.

[jigjay]

A transfer to a connected company is deemed to be at market value, so SDLT could be payable.

so if the person giving the gift is unconnected to the company(ie not a shareholder or director), and there is no mortgage on the property, is SDLT payable if the property is gifted to the company?

And can a property be left to a Ltd Company in a will?

Many Thanks

[maths]

The definition of "connected" is extremely wide.

However, assuming that the donor of the property and the company are not connected then no SDLT is payable.

Yes, a property can be left by will to a company.