Inherited commercial property income and tax question
Discussion
My uncle has left me a commercial property producing at £15k p.a. I'm a Partner in an LLP and can't be a Director of another company.
I want to set up a Ltd company with my wife as Director and grant the company a lease over the asset. This can be at at a peppercorn for 5 years enabling enabling her to benefit from the income without incurring SDLT.
The property needs improvement and we're likely to invest in it to improve the income over time.
From a tax perspective is this ok, am I missing anything?
Thanks
I want to set up a Ltd company with my wife as Director and grant the company a lease over the asset. This can be at at a peppercorn for 5 years enabling enabling her to benefit from the income without incurring SDLT.
The property needs improvement and we're likely to invest in it to improve the income over time.
From a tax perspective is this ok, am I missing anything?
Thanks
Noel said:
Yeah the idea of the 5y lease is to avoid SDLT.
I suppose I could transfer it but that would incur some cost. I can sort the lease myself.
I'm no tax expert and I may not have fully understood the situation but if you give a lease for peppercorn to the Mrs won't that potentially be seen as tax evasion?I suppose I could transfer it but that would incur some cost. I can sort the lease myself.
Isn't that like me selling my son my house for £1 to avoid IHT?
https://www.gov.uk/guidance/stamp-duty-land-tax-tr...
Leasehold transactions you don’t need to tell HMRC about
Leasehold purchases with a lease of 7 years or more
You don’t have to tell HMRC or pay SDLT when:
you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
you assign or surrender a residential or non-residential lease (granted for 7 years or more) and the chargeable consideration is less than £40,000
Leasehold property purchases where the lease is for less than 7 years
You don’t have to pay SDLT or tell HMRC if you buy a new or assigned lease of less than 7 years, as long as the chargeable consideration is less than the residential or non-residential SDLT threshold.
Chargeable consideration includes:
any premium and the net present value of any rent in the case of a new lease
the consideration given for the assignment or surrender of an existing lease
To work out the net present value (based on the average rent over the life of the lease) you can use the Stamp Duty Land Tax calculator.
Leasehold transactions you don’t need to tell HMRC about
Leasehold purchases with a lease of 7 years or more
You don’t have to tell HMRC or pay SDLT when:
you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
you assign or surrender a residential or non-residential lease (granted for 7 years or more) and the chargeable consideration is less than £40,000
Leasehold property purchases where the lease is for less than 7 years
You don’t have to pay SDLT or tell HMRC if you buy a new or assigned lease of less than 7 years, as long as the chargeable consideration is less than the residential or non-residential SDLT threshold.
Chargeable consideration includes:
any premium and the net present value of any rent in the case of a new lease
the consideration given for the assignment or surrender of an existing lease
To work out the net present value (based on the average rent over the life of the lease) you can use the Stamp Duty Land Tax calculator.
surveyor said:
https://www.gov.uk/guidance/stamp-duty-land-tax-tr...
Leasehold transactions you don’t need to tell HMRC about
Leasehold purchases with a lease of 7 years or more
You don’t have to tell HMRC or pay SDLT when:
you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
you assign or surrender a residential or non-residential lease (granted for 7 years or more) and the chargeable consideration is less than £40,000
Leasehold property purchases where the lease is for less than 7 years
You don’t have to pay SDLT or tell HMRC if you buy a new or assigned lease of less than 7 years, as long as the chargeable consideration is less than the residential or non-residential SDLT threshold.
Chargeable consideration includes:
any premium and the net present value of any rent in the case of a new lease
the consideration given for the assignment or surrender of an existing lease
To work out the net present value (based on the average rent over the life of the lease) you can use the Stamp Duty Land Tax calculator.
That's interesting, thanks.Leasehold transactions you don’t need to tell HMRC about
Leasehold purchases with a lease of 7 years or more
You don’t have to tell HMRC or pay SDLT when:
you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
you assign or surrender a residential or non-residential lease (granted for 7 years or more) and the chargeable consideration is less than £40,000
Leasehold property purchases where the lease is for less than 7 years
You don’t have to pay SDLT or tell HMRC if you buy a new or assigned lease of less than 7 years, as long as the chargeable consideration is less than the residential or non-residential SDLT threshold.
Chargeable consideration includes:
any premium and the net present value of any rent in the case of a new lease
the consideration given for the assignment or surrender of an existing lease
To work out the net present value (based on the average rent over the life of the lease) you can use the Stamp Duty Land Tax calculator.
Sorry to hijack the thread but I'm in the process of transferring a residential property held as an individual into a limited company. I will have a SDLT charge.
Going by what you've said can I just lease it to my company for £800 a year and avoid SDLT?
Noel said:
My uncle has left me a commercial property producing at £15k p.a. I'm a Partner in an LLP and can't be a Director of another company.
I want to set up a Ltd company with my wife as Director and grant the company a lease over the asset. This can be at at a peppercorn for 5 years enabling enabling her to benefit from the income without incurring SDLT.
The property needs improvement and we're likely to invest in it to improve the income over time.
From a tax perspective is this ok, am I missing anything?
Thanks
Ok, Cant understand why you can't be a director in another company, or set up an LLP with your wife, anyway.I want to set up a Ltd company with my wife as Director and grant the company a lease over the asset. This can be at at a peppercorn for 5 years enabling enabling her to benefit from the income without incurring SDLT.
The property needs improvement and we're likely to invest in it to improve the income over time.
From a tax perspective is this ok, am I missing anything?
Thanks
If this is generating an income ill assume there is already a tenant/leasholder in there, so you would need to create a new head lease, but why would the head lease have a lower value than the current lease.
Personally, if its generating 15k pa at say 8% yield (don't know where you are) its worth what 120/130K so SDLT would be minimal. (ok if its in mayfair on a 2% yield its a different matter).
Ltd co buy/transfer at full market value, you/her put the 'sale' in as directors loan.
No CGT to worry about.
Property sits on balance sheet at market value so if you do need to borrow for improvements it's all very straight forward.
Directors loan sits on creditors and she can withdraw the rent to the value of the DL tax free.
Deesee said:
Ok, Cant understand why you can't be a director in another company, or set up an LLP with your wife, anyway.
If this is generating an income ill assume there is already a tenant/leasholder in there, so you would need to create a new head lease, but why would the head lease have a lower value than the current lease.
Personally, if its generating 15k pa at say 8% yield (don't know where you are) its worth what 120/130K so SDLT would be minimal. (ok if its in mayfair on a 2% yield its a different matter).
Ltd co buy/transfer at full market value, you/her put the 'sale' in as directors loan.
No CGT to worry about.
Property sits on balance sheet at market value so if you do need to borrow for improvements it's all very straight forward.
Directors loan sits on creditors and she can withdraw the rent (after CT) to the value of the DL tax free.
Edited to add bit in bold.If this is generating an income ill assume there is already a tenant/leasholder in there, so you would need to create a new head lease, but why would the head lease have a lower value than the current lease.
Personally, if its generating 15k pa at say 8% yield (don't know where you are) its worth what 120/130K so SDLT would be minimal. (ok if its in mayfair on a 2% yield its a different matter).
Ltd co buy/transfer at full market value, you/her put the 'sale' in as directors loan.
No CGT to worry about.
Property sits on balance sheet at market value so if you do need to borrow for improvements it's all very straight forward.
Directors loan sits on creditors and she can withdraw the rent (after CT) to the value of the DL tax free.
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