Transfer Buy to let to Ltd co.

[Phleaser]

Hi,
I have a buy-to-let property which is currently mortgaged (75% LTV).

I am considering transferring it into a Limited Company, and taking a commercial mortgage at 75% LTV. Then taking dividends in later years.

How should the 25% deposit (which is currently equity) be handled? Do I need to put cash into the Ltd Co before the transfer?

I am sure there is no Capital Gains too.

Cheers.

Edited by Phleaser on Saturday 27th October 20:12

[Cheib]

I don’t see how you don’t pay CGT ?

[Phleaser]

Value has not increased since original purchase = no CGT liability.

[Eric Mc]

There will be stamp duty.

[malks222]

why do you want to move the BTL into a Ltd Company?

- you will need to pay stamp duty
- you will need to find a lender for a commercial mortgage, potentially higher rates than your current BTL lender. as you are starting a fresh Ltd company with zero trading, I'd imagine a commercial lender will probably look for additional security (from you, likely your main residence) so doesnt really 'limit' your liability.
- yes 'dividend tax' can be less than PAYE tax, but any profit the business makes will be subject to 19% corporation, before you pay yourself any dividend and pay tax on that also
- do you have an accountant? or are you going to process your company accounts yourself? are you aware of 'making tax digital' (altho this also applies to being a BTL landlord)?

[audi321]

A lot of people are contemplating this on the advice of accountants to escape the changes to mortgage interest coming in shortly.

However, this isn't as bad as people are thinking. You still get relief, but it's at 20%. So a 40% tax payer is losing 20% relief, a 20% tax payer is no worse off.

Given that rates are low, and therefore the interest is minimal, once you work out how much it will save you vs what it will cost to do it (i.e. higher mtg rate, fees, Ltd company accounts each year, etc, etc) I will be surprised if it's worth it.

Would be interested to do the calculation though, so if you don't mind posting the figures up?

[GTA_Slave]

I'm going through a similar process and asked the same a few days back. The equity is considered a Director's loan to the Company, i.e., it will stay as a loan on the Company's books owing you as an individual the difference between the market value (actual sale price) and the effective sale value (the mortgaged amount). I think this is what you enquired about so hopefully I've answered that.

I spoke to a CA about it yesterday and I would suggest you do the same. They will be able to offer you the best advice after considering all your circumstances and money invested towards professional advice is worthwhile given how much information I was able to obtain from an hour long chat.

[Oh Behave]

You will pay capital gains tax (difference between what you bought it for and what its now worth) if it is not your primary residence and you will also have to pay stamp duty to transfer it into your limited company.

Edited by Oh Behave on Monday 29th October 15:03

[malks222]

for the sake of discussion, I ran some figures (also assuming a higher rate tax payer):

Property value: £250k
Mortgage: £200k
Mortgage I/O Payment: £550/month
expenses (fees/ decor/ insurances etc...) £150/month

gives a PAYE position of this:


Go Ltd Company (assuming you get mortgage rates/ deal of the same)

Income: £12k

Deductions:
Mortgage: £6.6k
Expenses: £1.8k
accountant: £1k

Profit: £2.6k

Corporation Tax @ 19%: £500

Left over: £2k to pay as dividend (you have a £2k tax free dividend allowance)



That is the ongoing rough annual rates. However this is completely negated by you having to set up a limited company, limited company bank account, accountant etc......

oh also when the limited company purchases the property, it will incur the additional stamp duty surcharge (5% normal plus 3% surcharge)- on the £250k property this would be a £10k charge.

So in the above completely made up imaginary scenario it would cost £10k in a one off fee to save yourself £1.2k per year.


Oh and dont forget once its in the limited company, once you go to dispose of the property- sell for £300k= £50k profit= 19% corporation tax (£10k to the government) which leaves you £40k which will cost you more in dividend tax (if you already earned £50k PAYE that year, you'd then owe a further £12.5k on the £40k you had left. resulting in you having paid 45% tax overall on your £50k 'profit'

[anonymous-user]

malks222 said:

So in the above completely made up imaginary scenario it would cost £10k in a one off fee to save yourself £1.2k per year.

Which IMO confirms it would make no sense to set up a limited company to handle a single BTL. Remember there's actual work to do (company administration) as well as cost.

Different story if you own several properties.

[audi321]

Let's also remember the interest rate will be higher under ltd co. Each 1% rise (over the assumed 3.3%) will cost £2k per year and totally wipe out any saving.

[NickCQ]

rockin said:

malks222 said:

So in the above completely made up imaginary scenario it would cost £10k in a one off fee to save yourself £1.2k per year.

Which IMO confirms it would make no sense to set up a limited company to handle a single BTL.

1.2/10 is a 12% yield, which is probably higher than the implied yield on market value today.

3.5% net unlevered yield adjusted for 75% financing at 2% is an 8% pre-tax yield.

Therefore this transaction is accretive considering your return on capital for the other part of the deal.