Transferring a BTL property from personal names into a LTD company
Posted on 2nd August 2023 at 14:48
When the government implemented the Section 24 tax changes in 2015 which meant Buy to Let landlords could no longer deduct their mortgage interest payments as a business expense it caught many landlords and property investors off guard. For many it wiped out a huge chunk of their profit overnight. Since then, we have seen many landlords switch to investing via an LTD company where you can deduct mortgage interest as an expense like with any other business.
With this change in strategy, it has brought about a big question that all landlords and property investors face: Should I invest through a LTD company?
It also raises another question for landlords and investors who hold Buy to Let property in their personal name: Should I transfer the property to a LTD company for tax reasons? The answer to that question lies with your accountant as they will be able to advise if investing through a LTD company is the most tax efficient method for you based on your current personal tax situation.
But what does the process of switching a BTL property from your own name into a LTD company look like?
First of all, you will effectively be selling the property to yourself. Although you already own the property in your own name as e.g., Mr smith, you will be selling the property to your LTD company e.g. Mr Smith property LTD. So you will need a LTD company setting up (if you haven't got one already) you will also need a separate bank account in the name of that LTD company for rent to be paid into and mortgage payments to go out of.
You will need to sell the property to yourself at full market value, you cannot sell it to your company for £1. Nice try!
You will of course need a limited company mortgage to facilitate your purchase of the property. You don’t need a deposit; you can use the equity in the property to act as your deposit because all that would happen is the deposit would pass from your company account to your personal account on completion. So, the lender will allow you to use equity as your deposit without any need for funds.
You will submit your mortgage application as normal and push this through to completion like any other purchase.
As you are selling the property to your own company or buying from yourself – whichever way you want to look at it. You will need a solicitor to act on your behalf so you will have to find and pay a solicitor as part of this transaction. Just like with any BTL purchase you will also be liable for additional rate stamp duty upon completion of this purchase so you need to factor this into your costs when weighing up if transferring the property is for you.
If you have made a profit on this property, you will also be liable for capital gains tax. If your property has increased in value by more than £6,000 you will be liable to pay CGT. The capital gain is determined by the sale price – the purchase price = Profit. So be sure to factor this into your calculations too.
You can see there a lot of things to weigh up here, by working through the steps above you can work out the costs of transferring your property and then speak with your tax adviser (accountant) to see if a LTD company will be beneficial for you. You will also need to weigh up how long it would take for you to recoup the cost of transferring your property. For example, if it costs you £8,000 to transfer the property into the company, how long will it take you to save that amount in your LTD company? The length of time you intend to hold the property, the stage of your property journey and your future plans will also play a part in your decision.
Breakdown of costs:
Mortgage adviser fee
Mortgage fees E.g. arrangement fee, valuation fee
Capital gains tax
*Disclaimer this is not tax advice, we are not qualified to give tax advice. If you do need tax advice, we recommend speaking to a qualified accountant.
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