BTL property into Limited company or LLP

[C320]

Hi all, read a few threads on here with similar situations and prior to finding an professionals that specialises in these matters just wanted to see if the thought I have is sensible / workable / doable...

I sold our home a year ago at the same time my dad sadly passed away. We (wife & two kids under 18) now live with my mother. I therefore have some funds that I'd like to invest and BTL's are something I've been keen on. Many years ago I also worked in lettings. I am now thinking of buying / taking over a BTL that my parents had (I currently manage all of it for my mum with a managing agent anyway) as our first property before hopefully buying some freehold houses (or additional flats).

My parents BTL is a flat in London (Zone 2), it's currently let and has an interest only mortgage on it (Mortgage is just in my mums name now after my Dad passed away, but the property is still in joint names with Land Registry).

I'm in a position to pay off her mortgage on the BTL flat in full so there would be no outstanding debt on the property at the outset. To limit my mums CGT position (they've had the flat for circa 15+ years), would it be possible for my Mum & I to essentially go 50/50 into this moving the flat into an LLP or Limited company and at a later stage her ceasing to be a director of the LLP or Limited company. I know we'd need to pay SDLT on the market value (which also has the additional surcharge for company purchases). The main reason for the LLP / Limited company is essentially as I we have thoughts of buying additional properties to let, secured against the flat for the next 15-20 years, taking dividends if required before either selling for profit (or even transferring the company to our kids).

I'm currently a 40% tax payer and in the life of this investment t's quite likely I could hit the 45% threshold too.

I think that's all the pertinent info. I assume my question is more in the realm of account / tax planning advice as opposed to property law?

[LooneyTunes]

C320 said:

I'm in a position to pay off her mortgage on the BTL flat in full so there would be no outstanding debt on the property at the outset. To limit my mums CGT position (they've had the flat for circa 15+ years), would it be possible for my Mum & I to essentially go 50/50 into this moving the flat into an LLP or Limited company and at a later stage her ceasing to be a director of the LLP or Limited company. I know we'd need to pay SDLT on the market value (which also has the additional surcharge for company purchases). The main reason for the LLP / Limited company is essentially as I we have thoughts of buying additional properties to let, secured against the flat for the next 15-20 years, taking dividends if required before either selling for profit (or even transferring the company to our kids).

Directorship and ownership are two quite different things. The shareholders/partners are the owners of the company. Your mum ceasing to be a director wouldn’t mean that she no longer owned her share of the business. There are ways to structure to take into account that sort of thing but it’s an area where you’d want specialist advice and consider any side-effects of doing so.

On the second point, it’d probably be worth speaking to a BTL mortgage broker to see whether the market is biased towards individual property or portfolio lending. If the former then you’d probably want to mortgage the original in order to release funds to meet the capital requirements of additional properties, subject obviously to the overall economics/risks being within acceptable parameters.

However you set it up, think carefully about the properties you buy, the market(s) they sit in, how you’ll make money (property values vs income), and your risk exposure. 15-20 years is a good investment horizon but a lot will also change in that time in terms of regulation and the economy.

[C320]

LooneyTunes said:

Directorship and ownership are two quite different things. The shareholders/partners are the owners of the company. Your mum ceasing to be a director wouldn’t mean that she no longer owned her share of the business. There are ways to structure to take into account that sort of thing but it’s an area where you’d want specialist advice and consider any side-effects of doing so.

Ah yes, I should have thought of that! Another question added to my list.

LooneyTunes said:

On the second point, it’d probably be worth speaking to a BTL mortgage broker to see whether the market is biased towards individual property or portfolio lending. If the former then you’d probably want to mortgage the original in order to release funds to meet the capital requirements of additional properties, subject obviously to the overall economics/risks being within acceptable parameters.

However you set it up, think carefully about the properties you buy, the market(s) they sit in, how you’ll make money (property values vs income), and your risk exposure. 15-20 years is a good investment horizon but a lot will also change in that time in terms of regulation and the economy.

Regarding BTL mortgages, yes indeed, will absolutely consult a couple of specialist brokers. Having worked in the industry, yes fully aware of the property type point you make, location and tenant type are all part of the market equation I’ll be considering to try to minimise risk exposure.

The biggest unknown is what will happen in the political and regulatory landscape in this space moving forward - I’m sure they will look at ways to target these types of property investment companies!