There are many creative yet legitimate ways to save money with business and property.
One way is to sell your property to your limited company.
Read on to find out how to do this and its advantages.
Can you sell your house to your LTD company?
Yes, you can sell your house to your limited (LTD) company.
Your limited company is a separate legal entity to you, even if you are the director.
However, when you sell your house to your company, several administrative tasks must be completed.
This is where the process of this kind of sale comes in.
The process of selling your house to a limited company
Selling your house to a limited company is a relatively straightforward process because you represent both the buyer and the seller in the transaction.
When you sell your house to your limited company, remember that this is a property sale – not a property transfer.
Your purchase is subject to additional costs and fees as any other house purchase. Examples include:
- Stamp Duty Land Tax
- Capital Gains Tax
- Conveyancing/Legal fees
- Early Redemption Charges (if applicable)
For the transaction to occur, you must complete the sale and purchase on the same day.
Your limited company will need the funds to buy the property. You will then pay yourself back on the same day.
You may need a bridge loan if you need more funds to buy your house with your limited company. And you can even consider an overage clause, too.
Be sure to discuss your plans and finances with your mortgage lender.
What are the benefits of selling to your limited company?
A significant advantage of selling your house to your limited company is that you can create a substantial Director’s Loan Account (DLA) if it’s at market value.
You can then repay this loan tax-free over several years.
(However, you should remember that if most of your property is already mortgaged, this loan account will be smaller.)
Suppose you do not need to draw any income from the company in the short term. In that case, you could grow and manage a more extensive property portfolio as a full-time occupation into retirement.
The disadvantages of selling to your limited company
Stamp Duty Land Tax
Selling your house to your limited company makes it liable for Stamp Duty Land Tax (or equivalent).
This will be at a higher rate on the property’s purchase price or its market value if that is higher than the purchase price (Finance Act 2003 section 53).
Limited mortgage options
If you do not have the funds in your limited company to buy with cash, your company must be accepted on a mortgage to fund the purchase.
It is possible – but not easy – to do this. Most limited company mortgage lenders only want to lend to you for investment purposes. They will not allow you to live there.
This means you will likely have a restricted range of financing options.
Furthermore, if your limited company is being set up solely for this purpose, it can be challenging to find a lender because your company has no trading history.
You cannot move the house in ownership to the limited company while holding the mortgage liability personally.
Capital Gains Tax
You will need to pay Capital Gains Tax on the difference between the price when you bought the property and the price you sell it to your limited company at.
Fair market value would override the sale cost if it were sold at a discount.
Changing the property ownership from personal to company also usually means that the mortgage contract must be changed.
This can, in turn, trigger:
- Early repayment charges to redeem an existing mortgage if the term is not up
- A remortgage fee for a new product
- Solicitors fees for both the sale and buying
- A property valuation fee
Other
Additional disadvantages include:
- The redemption penalties that you will incur by paying off your existing Buy To Let mortgages early
- The solicitor fees incurred by transferring the properties into a limited company
- Any additional accountancy fees for running the limited company
- Any additional interest that you are likely to pay by using a commercial mortgage for your limited company over and above the buy to let (BTL) rates that you pay when holding properties in your own name
- The additional arrangement fees that you will pay using a commercial mortgage
Finally, if you require a bridge loan to buy your property with your limited company, some of your cash will be lost on the interest of this loan.
Want to sell your house?
At We Buy Any Home, we can buy your house for cash.
Our team of industry experts is experienced in purchasing a wide range of investment property sales, including residential and commercial properties.
