Transferring some properties to a limited company

[deanh]

Hi, I had a question on the transfer of residential BTL properties that I hold, to a newly set up limited company. The 3 properties are valued in total at c.£200k and all mortgage free.

I was looking to take advantage of a free draw down against a director's loan account but my accountant advised that I might not be able to do that as a Share Premium account would need to be set up, and would stop me from drawing down rental profits tax free against a £200k director's loan account. I just wondered whether anyone has any experience on this and if my accountant's advise is indeed correct.

Dean

[bd6759]

A share premium account is where you pay more for shares than their nominal value. For example, the company gives you 100 £1 shares in exchange for your property portfolio. If that happens, you have no director’s loan, but you have 100 shares worth ostensibly £200k.

If you sell your properties to the company for 200k, the company will owe you that amount. That is the directors loan. It is a debt from the company to you. The company repays the debt over time when it has the funds.

The company will need to pay 3% SDLT on the purchase.

You will be liable to CGT on the sale.

[AdamS93]

Your accountant is referring to incorporation relief to avoid the CGT on transfer.

I would suggest that 3 BTL’s would struggle to qualify for incorporation relief in the first place.

As mentioned above, the company would pay 3% SDLT and you would pay CGT on the sale.

[deanh]

Thank you to both of you for your clear responses. I assume that the additional 4% charge will also be applicable in addition to LBTT or SDLT?

[bd6759]

Yes, but that depends on when this happens and the value of each property. The increased COVID nil rate will apply at the moment.