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Pegs W

Can you rent your house to your own LTD company and rent a room from the LTD co,pany

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Dear all,

 

I have been looking for hours for an answer on-line and it appears that the question I have has not as yet been discussed elsewhere.

 

Question:

Is it possible to setup a LTD company for the purpose of renting my own house to it (4/5 bedrooms), to let the LTD (that I own) sublet it and I rent one of the rooms in order to keep it as my primary residence?

 

I think this would allow me to take some expenses from the income that are therefore jot taxable.

 

If I was just to sublet to two other people more of the income would come to my Gross Income.

 

Any advice/suggestions would be greatly appreciated!

 

Kind regards,

Pegs

 

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This, or something very like it, occasionally comes up on reddit's /r/ukpersonalfinance sub reddit,  there's a very knowledgable member who often comments in detail on HMRC tax matters.  What I've learned from him is that he HMRC has a lot of discretion to identify and penalise tax avoidance based on liberal interpretation of its regulations.

 

If you decide to do this you need to considered what the HMRC consider tax avoidance, the following are areas I'd be worried about:

 

The home needs to legally transferred to the LTD at market rate, this exposes you to personal CGT as the  asset is effectivly sold.  The LTD company would also have to pay SDLT, this recently increased by 3%.  On a £450k property that is going to be around £45k.  Not paying either is tax avoidance.
 

You could try transferring to the company under a Deed of Trust so that you own the property but the LTD has rights to profits, but  this is likely to be considered tax avoidance.

 

If the house is mortgaged you'd need to convert that to a BTL LTD compatible loan which is going to be at a higher interest rate,  under the LTD company you will continue to be able to claim back mortgage tax relief against corporation tax but this is likely to be considered tax avoidance because you still treat the house as your primary residence.


You can try to transfer the property via the Land Registry yourself but you should get a Solicitor to do it and get  some tax advice, that will cost at least £500+VAT, probably more if you find an accountant who will set this up in a way that won't be considered tax avoidance.

 

If you were to claim property maintenance expenses for your primary residence when its under a LTD company that you are the director of then its going to be considered tax avoidance.

 

You're looking at setting up a HMO under a LTD company, no idea if that will cause you any problems but its something to consider.

 

If you want to do this you its probably better to rent a flat as your primary residence as anything else is suspicious by the HMRC if and when you are audited.

 

 

 

 

 

 

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As the previous respondent points out, you would end up having to pay Stamp Duty transferring the property to the Limited Company. CGT is also due but you could claim Principal Private Residence Relief to exempt the gain if you have always lived there. 

However, if you continue to live in any part of the property once it has been transferred to the Limited Company you will face a benefit in kind charge each year as your Employer (the Limited Company) would be providing you with Living Accommodation.

You would also have to be careful not to fall foul of the ATED provisions if the property is worth £500,000 or more. If it is worth this then an additional tax charge would be levied each tax year because the property would not be being let on a commercial basis to an unconnected third party.

As regards the second query about renting property to your company and then they sublet, it is very likely that this would be caught by anti-avoidance provisions as the only or main reason for setting up such a structure would be to gain a tax advantage.


Alison Ward
Accountant & Client Manager

www.propertyhub.net/service/tax/

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We can only give general information on a public forum, and nothing in this post should be interpreted as advice. To speak to us about becoming a client and receiving bespoke advice, call us on 020 3936 2170 or email tax@propertyhub.net

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I'm very sorry for possibly asking a rather silly question....

A. What is a 'Third Party' ?

As I have a BTL owned by my Ltd company. As far as I see the ATED legislation :-

1. If it has a market valuation of >£500 AND

2. It is let to a "third party"

I am due to pay the tax.

Does "third party" mean a normal, residential tenant living in a 'normal' home ?

or does "third party" mean another company or legal entity ?

As such, if I have a 'normal' house, let under a normal AST to a 'normal' tenant, I have to pay ATED tax because it has a value > £500k.

B. The Purpose of the Tax.

I am hoping the 'Third Party' is actually to other companies or legal entities and it's purpose is to put 

a tax on property or land banking. If it is not, then I see it as a stealth Tax on companies buying, refurbishing and letting property.

 

I have to say, I do find the legislation ambiguous at best. I have printed the 'Annual Tax on Enveloped Dwelling (ATED) - changes from 2018' document and will read after I have completed some more pressing work ( annual tax returns ).

But I would appreciate you comments.

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