Tax Forum :: Free Tax Advice

Hi

After a bit of advice please. I inherited a flat a couple of years ago and decided to keep it as a rental property. I actually inherited the leasehold for the flat and the freehold for the building (it's an old house converted into 2 flats). I needed to get a mortgage on the property but could get one (without very high costs) if I owned both the freehold and the leasehold. So I set up a limited company to own the freehold, with me being the sole director.

I am finding the reporting obligations for the limited company a bit of a pain so would like to simplify things, hopefully by transferring the freehold to my wife. But I don't want to incur any tax in doing so.

I spoke to a surveyor about the freehold and he said it was only worth a couple of thousand. I understand that the company can't gift the freehold to her , as she would be liable for income tax. So would she be able to buy it for, say, £2,000? This would go to a bank account in the name of the limited company, and I could then pay that to myself by way of a dividend. This would be within the dividend allowance so no tax liable I think. The company would then be closed down.

Am I missing anything or would this work? Would there be any costs or taxes in addition to the costs of the actual transfer? Shouldn't be any stamp duty payable on a transaction of that size.

Thanks

If you are that worried, despite having filed a P85, complete a tax return for tax year 17/18 which presumably will give rise to a tax charge for the period Jan to Apr 2018. Pay this on or before 31.1.19.

If it transpires that you do qualify for split year treatment for 17/18 (as originally thought) then file an amended tax return for 17/18 (within 12 months of 31.1.19).

Ignore my posting; replied to wrong query.

You are missing a lot of things.

The transactions (for tax purposes anyway) will be deemed to occur at market value.

This is the problem with holding property within a limited company. Once Incorporated, it is notoriously difficult to dis-incorporate. You need professional advice to minimise the tax - but there certainly will be some tax payable in this situation (SDLT and CT on the gain most probably).

Probably best keeping the property within the company if you plan to continue renting it out.

Hi

Thanks for the thoughts.

Re the market value, it's not worth much. The surveyor said just a couple of thousand, which is where my £2,000 suggestion came from. Then this would be under the CGT threshold.

And for CT, would the company be deemed to have made a profit? If it came from an inheritance only a couple of years ago the market value probably won't have changed so no gain there.

Any thoughts welcome, would really rather get it out of the company if possible.

Thanks

I'm surprised the banks didn't like you owning the freehold and leasehold - you could probably have merged them (i.e. extinguished the lease so your flat is just freehold) when you came to own them both in your sole name. The company route sounds like a complicated solution.

In any case, I can't see any obvious problems with your plan if the bare freehold has such a low value. Alternatively, you could transfer the shares to your wife and then distribute the freehold to her, using her dividend allowance.