Transfer property to Ltd Company/SPV

[live4today]

Hope you can help.

I and my two siblings were gifted a property in Jan 2015 - the building had been divided (informally) into three flats. We managed to get the division formalised and each of us lived in our own flat until Dec 18. Since then they have all been rented out.

We now want to release some equity but have been told by our mortgage adviser that multi-unit freehold properties are not favoured by lenders and that we would be in a better position if we create a lease for each flat. From online reading, it seems that we would be best off transferring the freehold to the Ltd company/SPV and then creating leases in our individual names.

From a tax perspective, I am trying to get my head around the implications:

1) Capital Gains tax - at the time of the gift in 2015, local agents valued the building at £950k. We then spent £250k to refurbish, make the flats independent and formalise the separation. I would now value the total value of the three flats at £1,600k. Between PPR, Letting Relief and the CGT annual allowance, I don't believe there would be a CGT liability as a result of the transfer to another vehicle.

2) Stamp duty - as there is currently no lending on the property and the transfer is for nil value, I don't think there would be any stamp duty charge.

3) Income tax - I believe that we as individuals should continue to declare the rental in our personal names (i.e. pay Income tax) as opposed to the Ltd co./SPV declaring the profit and paying Corporation tax. FYI We are all lower rate taxpayers.

We are planning on selling all three flats in the next 3-5 years.

Thanks for reading!

[AdamS93]

1) you’ll have to crunch the numbers. For letting relief, you’ll have to get a move on as from 6th April 2020 letting relief is being abolished..

2) Stamp Duty Land tax will be payable based on the market value at the date of transfer. The ‘consideration’ is deemed to be market value when transferring to a limited company.

Stamp duty land tax will also have to be considered when the leases are issued.

3) the company will pay corporation tax and the directors/shareholders will pay income tax on the profits extracted from the company.

With the amount of money at stake, the best advice one can give you is to get paid for tailored advice.

[jerome.lane]

Hi, there are options to structure this tax efficiently. If you transfer property to a company and then lease it in your own names, you are going to have issues with benefits in kind rules unless you pay a market value lease for the property. I have helped many people in similar circumstances so please do contact me if you would like to take full advice.