Transfer of BTL properties to LLP or Limited company? - USERNAME: boito_1 - 11/08/2014
Tax Question:
Hi,
My wife and I have two Buy-to-Let [B2L] properties and our own house, but we are 40% tx payers. All three properties are mortgaged. We are considering another B2L, and wondered about the benefits of purchasing via an LLP or company [either of which would need to be set up].
An LLP looks quite attractive as we are looking to the longer term as retirement income in c.10 years' time. However, it also seemed interesting to see whether the B2L income could be used for paying university fees/living expenses [i.e. two children that would become partners on reaching 18 years of age] as the income could be diverted to them and fall within their tax allowance.
Finally, we would be looking in the much longer term as a means of minimising inheritance tax.
Questions: 1] Should we be looking to set up an LLP in the short term? 2] What happens to STLD on purchasing a property? 3] What would be the implications of transferring the existing B2L properties to the LLP? 4] Can we effectively direct LLP profits to the children for university fees/general living expenses in the way I think? 5] Impact on IHT when it comes to it?
Many thanks
Answer:
Yes you could consider either an LLP or a Ltd company. The rental profits of an LLP would be taxed on the partners directly, whereas if a Ltd company was used only corporation tax would be initially payable (at 20%). There would only be a further charge if cash/dividends were extracted.
Therefore the initial consideration should be whether all the profits would be extracted or not. If not, then a Ltd company has an advantage as it can reduce the tax charge on an annual basis.
In terms of a transfer of existing properties, this would be a market value disposal for a transfer to a limited company. Therefore any gain on the properties since the date of purchase would be subject to CGT on you.
If you transferred to an LLP and providing the LLP was owned by you/your wife there would be no CGT payable. If you subsequently brought in your children as partners this would then crystallise a disposal based on your reducion in ownership (eg if you gave your children a 10% interest in the LLP, 10% of the gain on the property would be chargable).
You could bring your children in as partners (LLP) or shareholders (Ltd company) to divert profits to them. Providing they are aged 18+ there would be no tax charged on you.
In terms of IHT, whether you used an LLP or Ltd company your beneficial interest in the LLP/Shares of the company would be taken into account for IHT purposes.
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=============================================================i) Please note that the articles/answers contain general guidance only and do not constitute accountancy, tax, investment or other professional advice.
ii) The contents of this article/answer are for information only and are intended to assist readers in identify any tax planning opportunities that may be available to them. The information contained in this answer is not intended to be a substitute for taking proper taxation advice and should not be relied upon in this way. Always consult a qualified accountant or taxation adviser. Your situation will then be looked at individually and specific advice relevant to your circumstances can be given. The Expert does not accept responsibility for any loss arising as a result of reliance on any information contained in this answer.
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