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Where Taxpayers and Advisers Meet

Change BTL to fhl to reduce cgt

Miaken
Posts:3
Joined:Fri Apr 20, 2018 7:05 am
Change BTL to fhl to reduce cgt

Postby Miaken » Fri Apr 20, 2018 7:20 am

I am a Newby here and terminology may not be correct so please go easy on me!

I have had a large BTL portfolio split 50/50 with my wife for circa 15 years. We are highly leveraged and the new tax rules (s24) are going to make life very difficult for us so time to sell. I have paid for lots of professional advice but am very wary of jumping in to things that may not be right such as BICTS, HYBRIDS etc. I could go ltd but being honest, I am done with it all and looking for the exit:

Is it possible to make some of my BTL properties into holiday let’s to pay less CGT?

I see a lot of Airbnb flats in some ex council areas (where most of my flats are) which makes little sense. They are cheap and probably comply with all holiday let rules but I don’t see them as great money spinners!

are landlords changing their BTL to airbnbs, running them for a year then selling but paying only 10% CGT assuming they are eligible for entrepreneurs relief?

I am selling at least 25 pre s24 and this technique would save me a lot of money, however only 3 would genuinely be considered by myself as good holiday lets; converting these 3 would still save me £100k

Thanks for reading and appreciate good advice

Miaken
Posts:3
Joined:Fri Apr 20, 2018 7:05 am

Re: Change BTL to fhl to reduce cgt

Postby Miaken » Mon Apr 23, 2018 9:08 am

Anyone know anything about this? I am getting conflicting answers from other forums :(

I need to decide on one which is an HMO very quickly before I miss the students.

Thanks

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Change BTL to fhl to reduce cgt

Postby bd6759 » Mon Apr 23, 2018 6:57 pm

You have paid for lots of professional advice and are checking out replies in various forums. Why? Are you not getting the answer you want?

If I were you, I'd listen to the professionals you have paid. They have a vested interest in giving you correct advice, and understand fully what you are proposing. It is very difficult to understand how properties that you have owned for 15 years can be highly leveraged to an extent that capital gains tax is a significant issue. Unless you have been borrowing against the properties to enjoy the capital appreciation. In that case much of the interest would not be allowable under the exiting rules and the new rules will have limited impact.

(In the unlikely event that the property satisfies all of the FHL tests, the gain arising whilst it was a FHL (but not the whole gain) could qualify for ER as long as the other ER conditions are met).

Miaken
Posts:3
Joined:Fri Apr 20, 2018 7:05 am

Re: Change BTL to fhl to reduce cgt

Postby Miaken » Tue Apr 24, 2018 11:52 am

If I had gone with the first experts advice I would now be ltd having used a BICT and probably never have visited a fortum ever again - bliss!!!!

If every expert said the same thing I would be comfortable taking their advice but running the expert view past another experts is met with: that won’t work, you will be evading tax, you will go to jail, big risk, I wouldn’t do it etc!!! It then becomes a problem, which one is the expert?

The issue the government has hit landlords with is way above the pay grade of my regular accountant who has also sought advice from experts on my behalf and concluded the same thing, nobody seems to know, not even HMRC. Even with this simple question of converting a BTL to a FHL was met with a “I don’t know, I will refer it to someone else and they will come back to you” but they didn’t. I have read the HMRC guidelines but being an ex mechanic and bus driver I am not too good at gleaning what I need from complicated tax documents which can be interpreted one way or another even by the experts.

It is very frustrating for the layman who simply wants to get on with his life; I spend much more time trying to find answers than I do actually managing flats. I should not have to work out which expert is lying and which is not, why should I end up in court or jail for doing what the expert tells me. I know, I should do my due diligence but as always you ask a question and get several opposing answers making choosing impossible.

I am still highly leveraged because I was dumb enough to listen to the experts who said no point paying down your mortgages!!!! Some of my flats are in areas where the price has not increased since I bought them (several fallen) therefore the 85% LTV is still much the same. Fortunately I did not blow all my rental income on fast cars and women and in a good position to save myself retaining perhaps 10 or 15 mortgage free when all this is done but this does not help the 45 to 50 families I need to evict to achieve my personal goal.

Converting to a ltd company seems to be the safest option and will save evictions but the experts say MIR could end for ltd companies so the circle starts again!

My options:

Ltd company normal way? paying several hundred thousand in cgt and retaining the full portfolio? Downside is having to refinance properties that are in negative equity and most flats are rented to benefit claimants who mortgage companies don’t like. I would also need to throw all my retained cash into the pot which could be lost if the government change the rules with MIR so throwing good money after bad worries me.

Ltd company using a BICT? Upside is no refinancing, no evictions, not too expensive to do! Downside is other experts say don’t touch it, you will be fined and need to pay all back taxes, if government change rules I am am back to where I was needing to sell to avoid bankruptcy should the interest rates increase substantially.

Hybrid? Upside is??? Very few details unless you pay several thousand to find out, other experts say don’t touch it or never heard of it, if it works and is not tax evasion or avoidance I have won a watch. Downside: court!jailed! Tarred and feathered for listening to the wrong “expert”

Do nothing? Upside is I get to stay with my current accountant who contacts tax experts on my behalf and costs me very little, I stay on the right side of the law although still treated like a criminal just for being a landlord. Downside: my taxes go up by at least 40k per annum leaving a £12k profit (based on last years figures) assuming no big repairs, if interest rates rise further I go belly up or bail myself out for a while then go belly up.

Sell sell sell: upside: less stress, I cash in those with equity before the market collapses (Brexit effect, landlords bailing), I reduce my LTV, get rid of my 25 or so on 4.95% rates, keep all my 2.95% rates. Downside: nightmare giving NTQ and up rooting 25 plus good tenants and their families! 25 plus renovations to manage, paying cgt on things I didn’t really want to sell.

Here is a good opportunity to see what the “experts” say and to see if their opinions agree. If everyone puts in their tuppence worth I will go with the majority.

I am an open book so feel free to ask any more questions

Thanks

Ken

someone
Posts:692
Joined:Mon Feb 13, 2017 10:09 am

Re: Change BTL to fhl to reduce cgt

Postby someone » Tue Apr 24, 2018 12:54 pm

It depends on what you want to achieve

My 2p

Option 1. Sell everything. Pay the CGT. live well off the capital for the rest of your life (depends on your age and how much you have)

Option 2
1 Sell everything that will not make a capital gain (you imply there will be losses on some)
2 With the losses from 1 sell the ones that have the highest interest costs until your CGT allowance is used up
3 With the proceeds from 2 pay down the remaining most expensive mortgages.

4 Consider putting some properties into a company. There will be SDLT and CGT - but the revaluation will allow you to borrow more, which you can use to pay down the mortgages outside the company.
5. Unwind your positions over the next 10 years. And hope that the interest relief in the company lasts long enough to make that decision profitable for you.


To be honest, it surprises me that BTL landlords don't have an exit strategy. I can see how a price crash might cause the strategy to become unworkable but that isn't your situation.

Or perhaps, despite your original post, you don't really want out.


If you don't want out, you have an multivariate optimization problem - but I'm not looking for work and do not know enough about tax to setup the calculations anyway. And it's (another) area of tax law where the goalposts are moving almost weekly.


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