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Peter, Chartered Tax Advisor
Category: Tax
Satisfied Customers: 152
Experience:  Director at PDS Tax Limited
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As a private landlord with a small number of flats in my

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Good afternoon. As a private landlord with a small number of flats in my folio bought in my name and mortgaged with interest-only mortgages, is it feasible to transfer the assets and liabilities of those properties via a Deed Of Trust to my already existing limited company? The view to doing this would be twofold: 1. To counter the loss of tax relief on interest-only BTL mortgages which is now being phased out. 2. When I come to sell the property/ies, I would be subject to Corporation Tax and not CGT.
JA: What are the assets or property for this capital loss?
Customer: Sorry, I do not follow your response. Are you able to answer my question in principle?
JA: Anything else you want the Accountant to know before I connect you?
Customer: I am UK based as are my properties. I also currently own x 4 properties in my folio which are already in my limited company via a Deed of Trust; drafted by my usual conveyancing solicitor at the time of completion - IE when I originally purchased the properties with mortgages in my own name. The question is; can I now transfer the remaining BTL properties to my limited company via a Deed of Trust vehicle? Or is there another vehicle that I should know about?

Hi, my name is ***** ***** I am a Chartered Tax Advisor. I am reviewing your query and will reply shortly.

Can I just clarify the circumstances please before continuing: you have 4 let properties on interest only mortgages that you would like to transfer via a deed of trust (assisted by your solicitor) to your existing property rental company?

Are there any other owners of the properties that you want to transfer to the company?

Kind regards, Peter

Customer: replied 7 months ago.
Hi Peter; just been through my spreadsheet - there are in fact 5 properties originally bought solely in my name on interest-only btl mortgages that I would like to transfer in this way, and 2 other properties that were bought in joint names; my name and that of my wife's. My wife is a shareholder of my limited company.

Ok thanks for clarifying. The primary considerations are stamp duty land tax (SDLT) and capital gains tax (CGT).

For CGT purposes transferring properties into a company controlled by you are treated as a disposals at market value which are likely to result in capital gains tax becoming payable. The usual way around this is to use incorporation relief, and one of the conditions for incorporation relief is the existence of a 'business' rather than passively collecting money from investments. You would need to obtain proper advice from a tax advisor and go into the case law in detail but I would guess that if you are using agents to manage your properties you probably don't have a 'business' for the purposes of incorporation relief. As such you most likely would be exposed to CGT on transferring the properties to a company. That may or may not be an issue depending on what the unrealised gains are (especially if e.g. you had losses).

For SDLT purposes the company would be subject to SDLT based on the market value of the properties that you transfer in. The only way around this is to use a specific exemption only available to partnerships. Based on what you have said, I cannot see any existence of a partnership (even with the jointly owned properties). As such there is not a way to transfer the properties to the company without a market value SDLT charge.

You can see that there are these two significant hurdles. These 'dry' tax charges are usually prohibitive to transferring existing properties into companies. They can potentially be overcome with careful tax planning and correct implementation but I would think not in the current state unfortunately.

In the long term it is your ultimate goal to get these properties into your company I recommend you engage with a tax advisor to provide formal advice on how to restructure with a view to incorporating in a few years time.

If you have any follow up questions, I am happy to help. Otherwise please consider a 5 star rating for my answer.

Customer: replied 7 months ago.
Hi Peter - sorry for tardiness of reply. Just to make clear, my rental folio is fully managed by myself, so I would certainly not recognise it as a passive investment. A friend of mine with a similar sized folio has recently transferred his properties into an LLP - albeit at at a cost of around 30k . Any thoughts or pointers on this? Also, my other reason for moving my stock is to do with the tax relief on the interest payments I am currently benefiting from on the btl interest-only mortgages taken out in my name. As I am sure you're aware, this relief is being tapered off (thank you Mr Osbourne!). This is a very real concern - if interest rates rise, I could be in a very real situation where I would be taxed on the rental income of say 12K pa when the mortgage interest payments could exceed that - and I would not be able to offset that cost as I would with any other expenditure that is fundamental to running a business. I look forward to hearing from you - Best wishes , Martin

Hi Martin

I agree the mortgage interest restriction is going to have a huge affect for landlords and the effects are only starting to emerge now.

Managing the properties yourself without the use of a letting agent is certainly a good start for proving the existence of a "business" which is important for claiming incorporation relief. Other (potentially overlapping) characteristics would be:

- Inspecting the properties

- Overseeing the maintenance of communal areas e.g. hiring contractors

- Being responsible for clearing and cleaning properties when the tenants leave

- Directly interact with tenants including collecting rent yourself

- Send correspondence to tenants, third parties

- Document and file all decisions made

- Maintaining a separate bank account

- No other serious commitments of your time

For the SDLT relief you need to evidence the existence of a partnership. Typically partnerships would show:

- Business set up with a view to making a profit and evidenced by partnership accounts and tax returns

- A formal partnership agreement

- Vat registration in the name of the partnership

- Properties shown as partnership assets in the accounts

- Income received gross, partnership costs deducted and net amounts (profits) split between partners as evidenced by the accounts

- A history of minuted partnership meetings

- Correspondence/invoices sent from partnership stationary

These suggestions for both SDLT and CGT relief are just indicative and no single or combination of factors determine whether relief will be available. Typically the tax advice surrounding property portfolio incorporation is expensive because of these grey areas.

As you are exposed to the mortgage interest restriction I do think it is worth considering taking formal advice on how to restructure and how to implement incorporation. It sounds as though you already have a decent case for having a business, as you have a number of properties and you do not use management agents, and it may just be a case of restructuring and documenting operation as a partnership to tick the box for SDLT relief.

Kind regards, Peter

Peter and 3 other Tax Specialists are ready to help you
Customer: replied 7 months ago.
Thanks Peter - whilst not black and white, your answer is clearly well-considered, and helpful. Best wishes Martin