My LTD company buying my BTL
Discussion
Hi all,
I currently have a BTL property that I paid £185k for. Remaining mortgage is £130k.
I also have a residential mortgage of £220k. (Neither mortgage is currently tied in so no overpayment charges).
I have a LTD company that I am sole director of, which currently has £75k in cash assets but will have £200k in cash assets this time next year.
I'm in a dilemma as to what to do with the assets that are building up in my company, and am considering investments (I've never invested in anything in the past and am a novice who is currently in discussions with an IFA).
A discussion yesterday with the IFA was interesting; could my company buy my BTL property? Anyone done this or know more about it?
The way the IFA described it was as follows;
Pros - Get £185k (for arguements sake) out of my company into my personal account. Use this to pay off my residential mortgage and save £xxx in interest over the next 20 years.
The company can offset the interest on the mortgage (something I wont be able to do personally in a few years due to new BTL laws)
Cons - Will pay £7.5k stamp duty.
Am I missing something?
Many thanks
I currently have a BTL property that I paid £185k for. Remaining mortgage is £130k.
I also have a residential mortgage of £220k. (Neither mortgage is currently tied in so no overpayment charges).
I have a LTD company that I am sole director of, which currently has £75k in cash assets but will have £200k in cash assets this time next year.
I'm in a dilemma as to what to do with the assets that are building up in my company, and am considering investments (I've never invested in anything in the past and am a novice who is currently in discussions with an IFA).
A discussion yesterday with the IFA was interesting; could my company buy my BTL property? Anyone done this or know more about it?
The way the IFA described it was as follows;
Pros - Get £185k (for arguements sake) out of my company into my personal account. Use this to pay off my residential mortgage and save £xxx in interest over the next 20 years.
The company can offset the interest on the mortgage (something I wont be able to do personally in a few years due to new BTL laws)
Cons - Will pay £7.5k stamp duty.
Am I missing something?
Many thanks
You will be liable to Capital Gains Tax (CGT) when you "sell" the property to the company.
Is the property in your sole name at the moment?
Does the property generate rental profits? I assume it does. And I assume you pay Income Tax on those profits.
If and when the property is owned by the limited company, the company will pay Corporation Tax on those profits.
When you withdraw those profits out of the company for your own personal use, you will pay Income Tax (and possibly NI) at the point of withdrawal).
When the company eventually sells the property, it will more than likely pay Capital Gains Tax (at Corporation Tax rates) on disposal. So, you will have paid Capital Gains Tax on the same property TWICE (once when you sold it to the company and again when the company sold it).
Note - although companies pay CGT at Corporation Tax rates (i.e 20% - which is lower than personal tax CGT rates), an individual gets an annual Capital Gains Tax allowance (currently £11,000). A limited company does not get this relief.
On the other hand, companies still receive Indexation Relief when computing Capital Gains. Individuals lost Indexation relief almost ten years ago.
Lots of variable, I'm afraid.
Is the property in your sole name at the moment?
Does the property generate rental profits? I assume it does. And I assume you pay Income Tax on those profits.
If and when the property is owned by the limited company, the company will pay Corporation Tax on those profits.
When you withdraw those profits out of the company for your own personal use, you will pay Income Tax (and possibly NI) at the point of withdrawal).
When the company eventually sells the property, it will more than likely pay Capital Gains Tax (at Corporation Tax rates) on disposal. So, you will have paid Capital Gains Tax on the same property TWICE (once when you sold it to the company and again when the company sold it).
Note - although companies pay CGT at Corporation Tax rates (i.e 20% - which is lower than personal tax CGT rates), an individual gets an annual Capital Gains Tax allowance (currently £11,000). A limited company does not get this relief.
On the other hand, companies still receive Indexation Relief when computing Capital Gains. Individuals lost Indexation relief almost ten years ago.
Lots of variable, I'm afraid.
JapanRed said:
Hi all,
I currently have a BTL property that I paid £185k for. Remaining mortgage is £130k.
I also have a residential mortgage of £220k. (Neither mortgage is currently tied in so no overpayment charges).
I have a LTD company that I am sole director of, which currently has £75k in cash assets but will have £200k in cash assets this time next year.
I'm in a dilemma as to what to do with the assets that are building up in my company, and am considering investments (I've never invested in anything in the past and am a novice who is currently in discussions with an IFA).
A discussion yesterday with the IFA was interesting; could my company buy my BTL property? Anyone done this or know more about it?
The way the IFA described it was as follows;
Pros - Get £185k (for arguements sake) out of my company into my personal account. Use this to pay off my residential mortgage and save £xxx in interest over the next 20 years.
The company can offset the interest on the mortgage (something I wont be able to do personally in a few years due to new BTL laws)
Cons - Will pay £7.5k stamp duty.
Am I missing something?
Many thanks
What happens to the BTL mortgage?I currently have a BTL property that I paid £185k for. Remaining mortgage is £130k.
I also have a residential mortgage of £220k. (Neither mortgage is currently tied in so no overpayment charges).
I have a LTD company that I am sole director of, which currently has £75k in cash assets but will have £200k in cash assets this time next year.
I'm in a dilemma as to what to do with the assets that are building up in my company, and am considering investments (I've never invested in anything in the past and am a novice who is currently in discussions with an IFA).
A discussion yesterday with the IFA was interesting; could my company buy my BTL property? Anyone done this or know more about it?
The way the IFA described it was as follows;
Pros - Get £185k (for arguements sake) out of my company into my personal account. Use this to pay off my residential mortgage and save £xxx in interest over the next 20 years.
The company can offset the interest on the mortgage (something I wont be able to do personally in a few years due to new BTL laws)
Cons - Will pay £7.5k stamp duty.
Am I missing something?
Many thanks
Eric Mc said:
When the company eventually sells the property, it will more than likely pay Capital Gains Tax (at Corporation Tax rates) on disposal. So, you will have paid Capital Gains Tax on the same property TWICE (once when you sold it to the company and again when the company sold it).
Setting aside rates and reliefs for a minute, that aspect wouldn't worry me. If you only pay Capital Gains on the difference between your purchase price and your selling price, it makes no difference if the property goes through the company first, as the total capital gain is the same.Although there is a timing impact and you lose the ability to use the £11k relief when the company disposes of it. I imagine your transfer price between you and the Ltd co would be restricted and based on 'market valuation'.
It would have to appear in the company's balance sheet at some value (as a company asset). That value would be deemed to be the "Purchase Cost" as far as the company is concerned and would be the "Sale Price" for the individual who is transferring the asset to the company.
HMRC would expect that the value used is an "arms length" valuation based on the market values pertaining to the property at the time of the transfer. If they disagree with the valuations used (which they are at liberty to do), they will appoint a local valuer to come up with what they think the correct valuations should be.
HMRC would expect that the value used is an "arms length" valuation based on the market values pertaining to the property at the time of the transfer. If they disagree with the valuations used (which they are at liberty to do), they will appoint a local valuer to come up with what they think the correct valuations should be.
Eric Mc said:
When the company eventually sells the property, it will more than likely pay Capital Gains Tax (at Corporation Tax rates) on disposal. So, you will have paid Capital Gains Tax on the same property TWICE (once when you sold it to the company and again when the company sold it).
On the same property but not the same gain so no doubling. Is there a way of spinning this so that the company just loans you the money instead of the mortgage co? That way, the excess cash in your company is receiving an income and if you can get this amount lower than your mortgage, more money for you too? No idea if this is feasible/what accounting/tax impacts this has?
If a company loans money to a director, there will be a taxable Benefit in Kind arising (unless the director is charged interest at the market rate). There is also a possibility that the company could be charged Section 455 Corporation Tax which would be at 20% of the balance of the loan.
CaptainSlow said:
Eric Mc said:
When the company eventually sells the property, it will more than likely pay Capital Gains Tax (at Corporation Tax rates) on disposal. So, you will have paid Capital Gains Tax on the same property TWICE (once when you sold it to the company and again when the company sold it).
On the same property but not the same gain so no doubling. The company would also be charged Capital Gains Tax when it sold the property X number of years later.
So the property would have picked up two Capital Gains Tax charges when in the hands (more or less) of the same person.
Eric Mc said:
CaptainSlow said:
Eric Mc said:
When the company eventually sells the property, it will more than likely pay Capital Gains Tax (at Corporation Tax rates) on disposal. So, you will have paid Capital Gains Tax on the same property TWICE (once when you sold it to the company and again when the company sold it).
On the same property but not the same gain so no doubling. The company would also be charged Capital Gains Tax when it sold the property X number of years later.
So the property would have picked up two Capital Gains Tax charges when in the hands (more or less) of the same person.
I can see where you are coming from.
Transaction 1 - individual to company - gain (say) £100,000 Individual pays
Transaction 2 (a number of years later) - gain (say) another £100,000 Company pays
Overall gain £200,000
If the individual had held onto it for its entire period of ownership, the entire £200,000 gain would have been taxed as a personal gain.
The problem is more likely to be lack of cash to pay the tax on the first personal gain as the transfer of the property from the individual to the company may not have generated a large cash amount - as an arm's length sale to a third party normally would.
Transaction 1 - individual to company - gain (say) £100,000 Individual pays
Transaction 2 (a number of years later) - gain (say) another £100,000 Company pays
Overall gain £200,000
If the individual had held onto it for its entire period of ownership, the entire £200,000 gain would have been taxed as a personal gain.
The problem is more likely to be lack of cash to pay the tax on the first personal gain as the transfer of the property from the individual to the company may not have generated a large cash amount - as an arm's length sale to a third party normally would.
Sorry for sounding stupid but some of what you say confuses me (as I sad I'm no expert on this).
Eric Mc - Yes the property is in my sole name, and it generates profits. Why would I possibly pay NI when I withdraw from the company?
I purchased the house for £185k 7 years ago so its not really gone up or down in value much. I could sell it to the company for £196k to make use of the £11k CGT allowance couldnt I? The house is realistically worth £180-190k ish.
Obviously I (read: my IFA) need to work the figures out properly. Anyone any idea of how to work out what all these charges might be? I'd essentially save £30-50k (need to check figures when I get home) in interest payments alone on my residential mortgage if I used the money to pay that off... I suspect I'd struggle to make £30-50k if investing the £185k elsewhere?
I am resigned to the fact I have to pay the CGT somewhere so why does it matter whether I pay it or my company?
Eric Mc - Yes the property is in my sole name, and it generates profits. Why would I possibly pay NI when I withdraw from the company?
I purchased the house for £185k 7 years ago so its not really gone up or down in value much. I could sell it to the company for £196k to make use of the £11k CGT allowance couldnt I? The house is realistically worth £180-190k ish.
Obviously I (read: my IFA) need to work the figures out properly. Anyone any idea of how to work out what all these charges might be? I'd essentially save £30-50k (need to check figures when I get home) in interest payments alone on my residential mortgage if I used the money to pay that off... I suspect I'd struggle to make £30-50k if investing the £185k elsewhere?
I am resigned to the fact I have to pay the CGT somewhere so why does it matter whether I pay it or my company?
JapanRed said:
Sorry for sounding stupid but some of what you say confuses me (as I sad I'm no expert on this).
Eric Mc - Yes the property is in my sole name, and it generates profits. Why would I possibly pay NI when I withdraw from the company?
I purchased the house for £185k 7 years ago so its not really gone up or down in value much. I could sell it to the company for £196k to make use of the £11k CGT allowance couldnt I? The house is realistically worth £180-190k ish.
Obviously I (read: my IFA) need to work the figures out properly. Anyone any idea of how to work out what all these charges might be? I'd essentially save £30-50k (need to check figures when I get home) in interest payments alone on my residential mortgage if I used the money to pay that off... I suspect I'd struggle to make £30-50k if investing the £185k elsewhere?
I am resigned to the fact I have to pay the CGT somewhere so why does it matter whether I pay it or my company?
If you took your income from the company in the form of salary, then there would be NI on that income.Eric Mc - Yes the property is in my sole name, and it generates profits. Why would I possibly pay NI when I withdraw from the company?
I purchased the house for £185k 7 years ago so its not really gone up or down in value much. I could sell it to the company for £196k to make use of the £11k CGT allowance couldnt I? The house is realistically worth £180-190k ish.
Obviously I (read: my IFA) need to work the figures out properly. Anyone any idea of how to work out what all these charges might be? I'd essentially save £30-50k (need to check figures when I get home) in interest payments alone on my residential mortgage if I used the money to pay that off... I suspect I'd struggle to make £30-50k if investing the £185k elsewhere?
I am resigned to the fact I have to pay the CGT somewhere so why does it matter whether I pay it or my company?
You cannot pick any old sale price you like when selling it to the company. The transacation should be "at arm's length" - preferably by a professional valuer of some sort making the valuation rather than you just making it up. You CAN do the valuation yourself but you would need to be able to support the valuation you have chosen by referencing to other properties in the same area at the same time the property was sold. As I said, HMRC can challenge a valuation.
Don't get fixated on saving tax. There are always other issues surrounding land and property deals that may be more important.
Thanks Eric - So what would you (and others) do in my position, as follows?
£75k cash plus an additional £75-100k per year building up in my LTD company
£60k per year salaried (full time job)
Fiancee (will be married in March) earns £40k salaried.
Both salaries more than cover the mortgages.
1 x residential mortgage in both names - house worth £300k, mortgage of £220k
1 x BTL in my sole name - house worth £180k, mortgage of 130k
Both of us have NHS pensions (one of the best on the market) plus my BTL, which will fund retirement
I am concious I have £330k of debt, which is currently manageable on our salaries, but an increasingly large amount of cash in the LTD company. We are 31 and 32 years old and although we want to save for the future, we feel we have this covered through our pensions and BTL. My IFA keeps saying to 'stick it in pensions' but it makes me feel like I am sacrificing my (relative) youth (by working so many hours), only to reap the benefits when im 60+ years old....
So many decisions and if I'm honest I dont really understand most of this investment speak.
Thanks again
£75k cash plus an additional £75-100k per year building up in my LTD company
£60k per year salaried (full time job)
Fiancee (will be married in March) earns £40k salaried.
Both salaries more than cover the mortgages.
1 x residential mortgage in both names - house worth £300k, mortgage of £220k
1 x BTL in my sole name - house worth £180k, mortgage of 130k
Both of us have NHS pensions (one of the best on the market) plus my BTL, which will fund retirement
I am concious I have £330k of debt, which is currently manageable on our salaries, but an increasingly large amount of cash in the LTD company. We are 31 and 32 years old and although we want to save for the future, we feel we have this covered through our pensions and BTL. My IFA keeps saying to 'stick it in pensions' but it makes me feel like I am sacrificing my (relative) youth (by working so many hours), only to reap the benefits when im 60+ years old....
So many decisions and if I'm honest I dont really understand most of this investment speak.
Thanks again
Ive just checked the mortgage documents and I will pay £126k in interest alone on my residential mortgage. Surely paying this off by getting my LTD company to buy my BTL is the way forward here?
Even with CGT and stamp duty I will be quids in massively if I reduce my residential mortgage from £220k to £35k.
Am I really missing the plot here? Apologies if I'm way off track but this seems a no brainer...
Even with CGT and stamp duty I will be quids in massively if I reduce my residential mortgage from £220k to £35k.
Am I really missing the plot here? Apologies if I'm way off track but this seems a no brainer...
JapanRed said:
Ive just checked the mortgage documents and I will pay £126k in interest alone on my residential mortgage. Surely paying this off by getting my LTD company to buy my BTL is the way forward here?
Even with CGT and stamp duty I will be quids in massively if I reduce my residential mortgage from £220k to £35k.
Am I really missing the plot here? Apologies if I'm way off track but this seems a no brainer...
I posted this earlier in the thread..............What happens to the BTL mortgage?Even with CGT and stamp duty I will be quids in massively if I reduce my residential mortgage from £220k to £35k.
Am I really missing the plot here? Apologies if I'm way off track but this seems a no brainer...
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