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bigduckontax
bigduckontax, Accountant
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Transferring mortgaged buy-to-let to a limited company

Customer Question

Transferring mortgaged second buy-to-let home to a "limited company" to save tax. Person owns a second property, buy-to-let mortgaged. The property will be let out on assured short hold tenancies. The owner is a higher rate tax payer and would like to reduce tax payable on rental income. Is there a benefit in transferring the ownership of the property to a limited company where the owner is the director? Will the lender allow that? What is the process of doing that?

Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. This is a perfectly feasible method of tax avoidance transferring the liability to a limited company with Corporation Tax (CT) at 20%. However, when the company distributes the income then that distribution is, in itself, liable to to personal taxation at the recipient's marginal rate. Furthermore, if this is achieved by means of dividends, this is not allowable against the company's profits for CT purposes thus effectively getting the income taxed twice. Furthermore, any distribution to a director, other than by dividends, must be made under PAYE arrangements as a director is deemed to be an employee. The transfer of a second home counts as a disposal thus exposing the transferor to Capital Gains Tax (CGT) on any gain made on transfer. The transfer price for CGT will be the current market value. Finally, there is the lender's position to be considered Lenders tend to be a tad hide bound and may not be prepared to assist in such a transaction which would require a new lender to be found. Arranging another mortgage, and indeed changing the current one, would be an additional cost to you.Transfer of the property itself could be achieved relatively simply using a Land Registry Transfer form, but with the complexity of a mortgage you will almost certainly need a solicitor to arrange a conveyance; more expense. I do hope that I have shed some light on your proposal.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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