Sell my home to a Ltd Co (SPV)

[JoDo]

Hi,

I stumbled across this forum as I was researching tax and property transactions and I am hoping that the forum users will be able to answer some of the questions I have; of course I will seek professional advice and all caveats around informal advice on internet forums is understood.

We live in Greater London and we currently have a property that has an outstanding mortgage of 150k. We are in the process of looking at slightly bigger properties as the current one does not support the needs of a young family. I wanted to sell the current property and buy a new one. However, all the conventional advice that we have been getting from friends, estate agents and mortgage brokers is to not do that but instead do a buy-to-let and extract capital out of the current property and use it as a deposit for the new one.

The 3 problems I see with this are

- A stamp duty surcharge to be paid on the new property
- Interest payments on the BTL mortgage not being fully deductible from the rental income in the new tax regime
- The additional income that we get and the taxation involved etc will be a hassle I would like to avoid

One of the things suggested by a friend was, to sell the current property to a Special Purchase Vehicle (Ltd Co) - that we control at market price. I understand that the company will have to pay stamp duty and there will be the SDLT surcharge also applicable.

The advantages are:
- We may not be liable to pay any SDLT surchage as we will no longer own a property
- There will be no capital gains tax as we are selling out Primary Residence - I understand this is regardless of who the property is sold to - so using a SPV has no bearing on this
- The interest payments will be completely deductible from any rental income
- If I choose not to take any dividends etc from the company, then only corporation tax needs to be paid and no income tax etc

The questions I have is
- Is this legal?
- What is the maximum LTV that a SPV can get
- If I give this SPV a loan for the deposit, can I extract this loan from the SPV without any additional tax as it is return of capital. I do not intend to extract money in any other form - just pay off the seed capital and then pay off the mortgage

I understand there will be other complications in extracting money from the SPV and other taxes like CGT when the property is sold. Also, I would have to appoint an accountant to so the admin involved with any filings that need to be done for the company.

Thanks for reading this - any advice / thoughts welcome.

Cheers,

JD

[SDLT Geek]

I am commenting only on your first question, of whether it is "legal" to sell your existing property to a limited company you own, so that when you personally buy another property the higher rates of SDLT for additional properties will not apply to that purchase.

Yes, it is "legal" in the sense that the sale can be a valid sale and title to the existing property can vest properly in the limited company.

Yes, as you identify the company must pay SDLT on the purchase and it will be at surcharged rates. Unless the new property is significantly more valuable than the one you already own this is likely to take the attraction out of the proposal. Bear in mind that SDLT on a transfer to one's own company is due on the higher of the value of the chargeable consideration given (the price) and the market value of the property.

The next question is whether the transfer to the company is effective to get you out of the higher rates for your next purchase. One would expect that it is, though there are anti avoidance rules of uncertain scope.

There are rules about having to disclose to HMRC schemes that are promoted to avoid or reduce SDLT, perhaps it is for that reason that we do not see much written about the strategy of transferring an existing low value property into a limited company before buying a high value property in order to escape higher rates of SDLT on the purchase of the more valuable property.