Since the UK Government introduced section 24 in April 2017 this removed a landlords right to deduct their mortgage interest as an allowable business expense many landlords changed their strategy to invest in property via LTD company to take advantage of the tax benefits of a company structure. This changed the strategy for many investors moving forward for their buy to let purchases post April 2017, but what about those with properties they bought before Section 24 was introduced? 

 

Since 2017 ourselves and many other mortgage advisers across the country have helped many investors to transfer their current Buy to Let properties into a LTD company to benefit from the tax changes a company can provide. But how do you do this and what should you know before you do this? 

As you own the property as an individual, moving the property into your LTD company will be registered as a property transaction and as a sale & purchase. You will need to sell the property to your company at full market value; you cannot sell it to your company at a discount as this will be seen as tax avoidance. 

 

Before you start the process, the best advice is to get your property valued, either by an estate agent or by conducting your own research on Rightmove and using this figure for all of your calculations. 

 

As well as a property valuation you will need to get an up-to-date rental figure for the property. If you already let the property, you can use the figure you are currently receiving. The rental figure achieved will determine how much you can borrow, only this time the rental stress test will be based on a stress test of 125% rather than potentially 140% if you are a higher rate taxpayer. 

 

As this process is technically a sale you will pay additional rate of 5% stamp duty on the purchase price for moving the property over. Again, as this is a property transaction you will need a solicitor to act for not only you as the seller but also the LTD company. This sounds ridiculous as you are the same person, but you need to have separate representation by law. You can use the same firm but will need a separate solicitor to act for each side of the transaction. 

 

One of the upsides to this type of transaction which can make the whole transaction easier to complete is that you can use the equity within the property as your deposit. Rather than have the cash in the bank as your deposit, the equity will transfer from you as the individual to you as the company on completion. 

 

75/80% LTV Limit still applies but you can raise additional funds to cover the costs of moving the property. If the rental figure supports the full loan amount of 75/80% you could raise additional borrowing over and above the existing mortgage balance which will be paid back to you on completion to cover the costs of moving the property such as the stamp duty, capital gains tax and solicitor costs. 

 

With any asset transaction, we always recommend speaking to your accountant first as there will be further tax implications for you to consider such as capital gains tax. If you are selling the property to your LTD company for more than you initially paid for it, you will have a capital gains tax liability which your accountant can calculate for you. 

Make sure you calculate your costs: stamp duty, 2 lots of legal costs, mortgage costs and capital gains tax liability. Before committing to the property be sure to consult your accountant to accurately calculate the costs before you move forward. You may be able to add some of the costs you may incur to your mortgage to help make the transaction easier. However, after consulting your accountant, it may be that completing the transaction may not be ta efficient for you at all. 

 

We have talked about the costs of moving the property into your LTD company such as the stamp duty liability, potential capital gains tax and the legal fees, but what about the mortgage costs? 

 

Like with any new mortgage there may be mortgage fees involved such as a valuation fee and arrangement fees to consider. This is where a good mortgage adviser – like us… can save you money you wouldn’t otherwise have known you can save. Your adviser should search the market to find the most cost-effective lending option to suit your needs. Typically, LTD company mortgage products do have arrangement fees which are usually a % of the loan amount that you can either pay up front or add to the mortgage and pay off over the life of the loan, but also valuation fees to be paid on application. There are still some lenders who offer a free valuation for LTD company mortgages but you need to find them and make sure that the rest of the product is cost effective, it may not be the cheapest option purely because it has a free valuation. 

 

As you can see there is a path for transferring your property into your LTD company, but it can be complex. If you would like support with moving your property into a LTD company, contact us on the link below to speak to an adviser today. 

Your Trusted Mortgage Partner in Hull, East Yorkshire | Green & Green