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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have just got divorced. We have 2 properties we rent out

Resolved Question:

I have just got divorced.
We have 2 properties we rent out in Egypt.
We wish to continue being joint owners and running the rental side of the business.
We were talking about putting these properties either into a company or some form of trust. I am being advised that neither of these options are of any real benefit.
We both work , i am a high rate tax payer.
It seems that both have tax implication concerns
The company one - HMRC will want CGT on transfer
Trust has taxation concerns
Can you assist
Thank you
Richard Aldridge
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

If you put the properties into a trust, who will be the beneficairies of the trust?
Customer: replied 2 years ago.

I assume myself and my ex wife, we have 1 dependant, 20 year old son.

I guess no benefit in adding him

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  TonyTax replied 2 years ago.

Hi again.

As you appear to have been informed already, tax implications will arise from putting property into a limited company or a trust.

COMPANY

Take a look at the articles here and here which deal with putting property into a limited company. If you do that, there will be CGT implications for you as if you had actually sold the properties at their open market value so you will have CGT to pay and not necessarily the cash to pay it.

A company will pay corporation tax on the rental income at 20% and if you want to draw on the profits, you can really only do so in the form of dividends which will have personal tax implications for you. Property investment companies don't benefit from tax breaks given to trading companies and their director/shareholders unfortunately.

TRUST

The tax benefits that used to be associated with trusts have largely gone. If you transfer property into a trust, you will be making a lifetime gift which could result in an Inheritance Tax liability for you if the value of the gift exceeds the current nil-rate band of £325,000. The lifetime rate of IHT is 20%. A capital gain can be deferred if a gift is a chargeable lifetime gift which a gift to a trust is but not in the case of a gift to a settlor interested trust. Take a look at HS295 here for more information.

Whilst there may be no immediate IHT liability, if you as the settlor are a beneficiary, the income will be treated as yours in any event. Take a look at HS270 here for more information.

Trusts are also subject to IHT charges every ten years. This charge is 6% of the value of the trust assets. There are also exit IHT charges where assets are removed from a trust. Take a look here for more information.

I can see no benefit in a company or a trust in your situation.

I hope this helps but let me know if you have any further questions.

TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thanks for help

Expert:  TonyTax replied 2 years ago.
Thanks.