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Setting up an SPV for BTL Mortgage (and more!)


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Hi all,

First and foremost what a great resource this website is, I look forward to ingesting all the information available.

I am currently buying my second home and will have to pay £10,000 SDLT surcharge on second homes. I am looking to get this refunded by transferring my current property into an SPV, thereby giving up personal ownership (this isn't the only reason!) and beginning the process of becoming a BTL landlord.

My first property will be let (consent to let already given) as soon as I complete on my second and I will run this as an individual for 6 months until my residential mortgage fixed term ends and I can remortgage to BTL with a BTL provider (actually a sale and purchase arrangement given transfer from individual to LTD). 

My questions are around the accounting for and the treatment of the transfer from myself to the SPV LTD.

The current MV of the property is £200k, and let's say I have paid of £120k so £80k left on the mortgage. This gives a fairly healthy LTV of 40% (will come back to this).

Firstly, I know I can gift the equity of the property to the LTD and use this as a deposit for the BTL mortgage. But what is the accounting for this in the LTD?

DR ASSET @ MV - 200k
CR MORTGAGE - 80k
CR EQUITY GIFTED? - 120k

I see a lot of people saying that they will transfer their equity into the LTD as a directors loan replacing the EQUITY GIFTED above with a DIRECTORS LOAN ACCOUNT. 

DR ASSET @ MV - 200k
CR MORTGAGE - 80k
CR DIRECTORS LOAN - 120k

Is any mortgage provider going to accept this, do they even care? I understand the tax implications are that as long as there is no interest on the loan I can extract the loan amounts without paying tax either in the LTD or personally. Have I got that correct?

Secondly, and this might not be the right section for this but as the LTV is 40% I'm unlikely to benefit from any reduction in interest rate below an LTV of 60%,  I'm wondering if I should "extract" this 20% as cash either from the mortgage (will they let me?) or buy using substantial overpayments made on the existing mortgage and freezing my current payments (so almost like a payment holiday).

I think that's it for now!

Thanks in advance,

 

Seb

 

 

 

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On 3/16/2021 at 6:36 PM, seb1uk said:

Hi all,

First and foremost what a great resource this website is, I look forward to ingesting all the information available.

I am currently buying my second home and will have to pay £10,000 SDLT surcharge on second homes. I am looking to get this refunded by transferring my current property into an SPV, thereby giving up personal ownership (this isn't the only reason!) and beginning the process of becoming a BTL landlord.

My first property will be let (consent to let already given) as soon as I complete on my second and I will run this as an individual for 6 months until my residential mortgage fixed term ends and I can remortgage to BTL with a BTL provider (actually a sale and purchase arrangement given transfer from individual to LTD). 

My questions are around the accounting for and the treatment of the transfer from myself to the SPV LTD.

The current MV of the property is £200k, and let's say I have paid of £120k so £80k left on the mortgage. This gives a fairly healthy LTV of 40% (will come back to this).

Firstly, I know I can gift the equity of the property to the LTD and use this as a deposit for the BTL mortgage. But what is the accounting for this in the LTD?

DR ASSET @ MV - 200k
CR MORTGAGE - 80k
CR EQUITY GIFTED? - 120k

I see a lot of people saying that they will transfer their equity into the LTD as a directors loan replacing the EQUITY GIFTED above with a DIRECTORS LOAN ACCOUNT. 

DR ASSET @ MV - 200k
CR MORTGAGE - 80k
CR DIRECTORS LOAN - 120k

Is any mortgage provider going to accept this, do they even care? I understand the tax implications are that as long as there is no interest on the loan I can extract the loan amounts without paying tax either in the LTD or personally. Have I got that correct?

Secondly, and this might not be the right section for this but as the LTV is 40% I'm unlikely to benefit from any reduction in interest rate below an LTV of 60%,  I'm wondering if I should "extract" this 20% as cash either from the mortgage (will they let me?) or buy using substantial overpayments made on the existing mortgage and freezing my current payments (so almost like a payment holiday).

I think that's it for now!

Thanks in advance,

 

Seb

 

 

 

Hi Seb, Gifting to a company won’t avoid CGT (if any due) for you on transfer or SDLT for the company on purchasing. You may as well keep a directors loan for future tax efficient extraction from the company.
 

Are you sure transferring to a company makes sense when the SDLT is £6k on £200k and any CGT might make it unpalatable especially with the extra admin and associated expenses, possible higher lending costs and little other immediate tax advantage if you aren’t a higher rate tax payer?

A broker should advise on the finance aspects and this should also be driven by making good use of the equity related and being able to manage fluctuations in the market.

The numbers might stack up if the property is likely to appreciate well, the company is going to keep investing and you don’t want income in your hands. Sometimes incorporation isn’t the right option... good luck!

Jerome

Jerome@TaxAntics.co.uk

www.TaxAntics.co.uk
 

 

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10 hours ago, taxantics said:

Hi Seb, Gifting to a company won’t avoid CGT (if any due) for you on transfer or SDLT for the company on purchasing. You may as well keep a directors loan for future tax efficient extraction from the company.
 

Are you sure transferring to a company makes sense when the SDLT is £6k on £200k and any CGT might make it unpalatable especially with the extra admin and associated expenses, possible higher lending costs and little other immediate tax advantage if you aren’t a higher rate tax payer?

A broker should advise on the finance aspects and this should also be driven by making good use of the equity related and being able to manage fluctuations in the market.

The numbers might stack up if the property is likely to appreciate well, the company is going to keep investing and you don’t want income in your hands. Sometimes incorporation isn’t the right option... good luck!

Hi Taxantics, I'm aware of the SDLT implications; however I'm currently -£10k from paying the 3% surcharge on the second home. If I transfer the previous main residence to the SPV I can get a refund of £10k. Less £6k SDLT on transfer to LTD is £4k back, CGT would be roughly, £186k original price -> £200k MV = CG of £14k less personal allowance £12.3k = £1.7k * 18% CGT = £306 pounds due. So transferring would return to me £3,694 net. 

My aim is to build a portfolio, starting with this property but expanding on. I don't need to extract any income and will seek to reinvest cash into further BTL's. 

My question was really around the accounting for the transfer in the LTD's accounts. Can I really give a directors loan in equity and expect it repaid in cash? 

I as an individual own 60% of the property which I will gift to the LTD or "loan" it, the property will use this as deposit against the 40% BTL mortgage. Is this allowable? I'm fairly sure the gift of equity is, but the benefit of cash extraction via calling it a directors loan would be substantial. 

Thanks

Seb

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Hi Seb, as long as you’ve ran the numbers and it stacks up for you considering extra admin costs and potential higher interest, then all good. I advise people on company versus personal ownership on a daily basis. If the property being transferred to the company is and always was your own home, then no CGT. The accounting would usually be to credit directors loan account because the transaction is treated as a sale and purchase for tax purposes even if you never intend drawing the equity transferred. Think of it like you can’t really make a gift to a company you own all the shares in as ultimately you’re still the owner!

Jerome

Jerome@TaxAntics.co.uk

www.TaxAntics.co.uk
 

 

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  • 2 weeks later...

Hi,

Any further advice on this would be appreciated as I still don't have clarity.

How does the SPV LTD account for the gift of equity that I personally have given it as a deposit on a BTL property? Can I account for it as a directors loan and extract the equity gifted out as cash. I know there are no CT implications on DLAs with no interest. It's moreso about the accounting treatment of the gifted equity.

Seb

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It’s only a gift if you can’t get anything back! You either provide a loan to the company or subscribe for more shares.

For a loan, the double entries are you debit bank account and credit directors loan account (DLA).

When profits are available, you can repay the DLA by crediting bank account and debiting DLA.  There’s no tax implications on repayment of a positive DLA.

For shares, you debit bank account and credit share capital (and share premium account where capital injected exceeds number of shares issued at par value).

It’s rare for capital introduced to be for shares unless it’s a trading company so you’d probably always go with the DLA option.

Jerome

Jerome@TaxAntics.co.uk

www.TaxAntics.co.uk
 

 

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3 hours ago, taxantics said:

It’s only a gift if you can’t get anything back! You either provide a loan to the company or subscribe for more shares.

This makes sense to me. The followup would be, can I provide a loan to the company in the form of equity I personally have in the house?

DR House Equity
CR DLA

Basically, if I gift the equity to the company, I get no benefit from doing so. If I loan the equity to the company I can use the fair value of that equity to extract cash from the company tax free. Do BTL mortgage companies allow this? 

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Hello, 

I intend to do something similar, sell a 2 bed flat to SPV, releasing equity as a DLA and using this for purchase of our new residential home. As moving from a 2 bed to a larger property the Scottish ADS works out at about 10k. Depending on the mortgage rate difference between personal and ltd and the accountancy fees the payback of this 10k could be as little as  5 years or considerably longer, this is with my wife being a basic rate tax payer and apportioning the income to her from the BTL.

On 3/18/2021 at 9:59 AM, seb1uk said:

My aim is to build a portfolio, starting with this property but expanding on. I don't need to extract any income and will seek to reinvest cash into further BTL's. 

We intend to do the same, it's definitely worth getting specific tax advice based on your circumstances to see which route works best. I'm also running a spreadsheet alongside this and getting up to date mortgage and accountancy costs. The 10k saving right now is very tempting but we need to have a good review of our savings/income potential for adding additional properties within the payback time. Food for thought.

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  • 1 year later...
On 3/30/2021 at 10:36 AM, taxantics said:

You’ve got it and yes, mortgage companies do allow this although I’ve seen some solicitor’s have a melt down getting their heads around it 🤪

Very good! Will lost property tax specialists know this kind of stuff?

We have a single property that we bought 6 years ago, and after living in it for 6 months we moved abroad and rented it out.
 

Now we are back in the UK we have moved from BTL to a Residential mortgage to benefit from lower rate, refurbished and calculated we have decent equity in the house (£300k).  
 

We want to buy our next residential property while if possible keeping this one and moving into an SPV. My wife is a Higher Rate tax payer and I’m Additional rate so now we’re here for tax reasons BTL in our own name won’t be very appealing. 

Can I do something similar to the above, with the caveat that there might be CGT to pay on the transaction into SPV?

Thanks in advance! Nick 

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Hi Nick, yes you’ll be able to do similar. I think you might be able to avoid the CGT. You can contact me by emailing jerome@taxantics.co.uk if you need any assistance. Good luck, Jerome 

Jerome

Jerome@TaxAntics.co.uk

www.TaxAntics.co.uk
 

 

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