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Landlords who own their property portfolio’s in personal names may be currently considering transferring the portfolio to a limited company. The incorporation of the portfolio would be advantageous for the following reasons:
Established property portfolios are likely to have significant capital gains attached to each of the properties. If these properties are disposed of to the new company, this could trigger a capital gains tax liability at 28% of the gain.
Also, on the transfer of the properties, Stamp Duty land Tax at the prevailing rate could be charged.
The incorporation planning techniques employed by Enterprise Tax mean that no taxes will be triggered on the transfer of the properties to the new company.
Whilst incorporating the property portfolio brings with it many advantages (see above), it can also been seen as a stepping stone to being able to secure large IHT savings. As mentioned above the IHT strategies to be considered include:
All of the above planning, which is bespoke to the clients circumstances, is implemented by our in-house team of Chartered Tax Advisers with many years of experience of advising owner managed businesses and property entrepreneurs.
Our clients who are property entrepreneurs usually face the same problems:
So in the worst case scenario they do nothing and the Government take 40% of the family’s wealth.
Whilst each individual’s circumstances are different, Enterprise Tax have developed a number of bespoke planning techniques that can help and save considerable amounts of tax.
Two examples are:
Client A held a portfolio of properties (7 properties) worth approx. £1.1m.
The capital gain tax if transferred to children was approx. £240,000.
The Inheritance Tax exposure was £440,000.
So a very difficult choice transfer now and pay £240k OR hold onto the properties but pay £440k in the long run.
Enterprise Tax were able to transfer the entire portfolio to a limited company WITHOUT triggering the £240k tax liability AND WITHOUT triggering the 4% stamp duty land tax charge of £44,000.
The company then sold 4 of the 7 properties for £560k “tax free” as when the properties are transferred to the company, base cost is uplifted to the current market value.
The £560k tax free proceeds were then used to buy, develop and sell properties. The IHT of £440k will be completely gone in 2 years.
Client B held shares in a property investment company worth £600,000.
He wanted to transfer these shares to his daughter but the capital gains tax bill on transfer was £168,000 (£600k x 28%).
The potential IHT bill was £240,000.
Enterprise Tax were able to put planning in place that allowed the client to transfer the shares to his daughter WITHOUT paying the £168k. The IHT of £240k will be saved within 7 years.
This can be a complex area, so if ETC Tax can be of any assistance, please do not hesitate to get in touch with us.