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bigduckontax, Accountant
Category: UK Tax
Satisfied Customers: 3814
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Tom. In March 2010 my son (in his sole name) bought a property

Customer Question

Hi Tom. In March 2010 my son (in his sole name) bought a property (held personally) for £225K. In August 2012, he bought another property to live in, price irrelevant. In order for him to buy the second property quickly at a good price, l loaned him £278K which was the market value of the first property in Aug 12. Since then, the first property has been let. My son receives the gross rental income. I invoice him the 'loan interest' each month (less any expenses). At the end of a tax year, he is tax neutral as income less expenses = loan interest. From 2016 we now have the loan interest relief at max the basic rate tax band. My son has his own limited company with a nett profit of circa £90K split to himself and wife. So if he earns any more (i.e. + the £13K profit rental) he will be restricted to basic rate band and lose approx. £2600 in tax which l will have to reimburse him. I am now retired , and l have a few buy to let properties held within a limited company. I am trying to find a way of avoiding this extra £2600 of tax. The current value of the property is around £350K. I have been researching, and rightly or wrongly found a few options. (i) to lease the property to my limited company (ii) to lease the property to my limited company, (iii) to make him a shareholder in my company and somehow transfer the property to 'our' limited company at nil consideration, (iv) carry out (iii) to his limited company (v) for a new ltd company, or of course, transfer the title from him to my limited company. If he sold it, he has the annual CGT tax exemption, and primary residence relief but l fear still a considerable CGT bill (or maybe not?). The there is stamp duty to consider. And, l still want that £13K a year profit rental in my company (or to me personally as it does right now) as l need the income. Any suggestions? Thanks. Mel
Submitted: 2 years ago.
Category: UK Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to be able to assist you with your question. Any sale or lease of the property would count as a disposal trigger a Capital Gains Tax (CGT) liability in your son's tax account. He would only have his Annual Exempt Amount of 11.1K to offset this gain; he has no entitlement to Lettings Relief as he never lived in the property before letting it out. Private Residence Relief would apply to the house he bought to live in and is at 100% of any gain made.. Stamp Duty Land Tax (SDLT) is payable on each transfer at a value of over 125K and is based on the consideration passed. Some of these transactions are what is known as 'linked transactions,' but SDLT is still payable by the acquirer of the property. I am so sorry to have to rain on your parade.