There is more than one reason why you may wish to sell your house. Some people sell on the market, because they are moving to another property… while other landlords may choose to sell their house to a limited company that they own. This blog is focusing on the latter of these scenarios.
Your limited company is a separate legal entity to you, even if you are the director. This means that when you sell your house to your company, there are several administrative tasks that must be completed, such as making sure your company can afford the purchase.
Nuanced challenges like these are why many landlords feel stuck when tackling this difficult scenario.
Read on for everything you need to know about selling your house to your limited company.
The process of selling your house to a limited company
There is nothing legally preventing you from selling your house to your limited company. You are allowed to do it.
If you wish to head down this route, then doing so is relatively straightforward – and becomes even easier if you are buying the property with cash.
When you sell your house to your limited company, you must remember that this is a property sale – not a property transfer. This means that your purchase is subject to the same 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 take place, you need to complete the sale and the purchase on the exact same day. This means that your limited company will need the funds available to buy the property, and you will then pay yourself back on the same day. If you do not have the funds available to buy your house with your limited company, you may need a bridge loan.
Be sure to discuss your plans and finances with your mortgage lender.
What are the benefits of selling to your limited company?
Selling your house to your limited company is a relatively straightforward process because you are representing both the buyer and the seller in the transaction.
A significant advantage of selling your house to your limited company is that, if you sell your property to your limited company at market value, you are able to create a substantial Directors Loan Account. You are then able to repay this loan, tax free, over several years.
Although, you should keep in mind that if most of your property is already mortgaged, the size of this loan account will be smaller.
Selling your house to your limited company may make sense if you do not need to draw any income from the company in the short term. It may also be advantageous if you wish to grow and manage a larger property portfolio as a full-time occupation into retirement.
The disadvantages of selling to your limited company
When you sell your house to your limited company, your company is liable for Stamp Duty Land Tax (or equivalent) at the higher rate on its purchase price, or on the market value of the property, if that is higher than the purchase price (Finance Act 2003 section 53).
If you do not have the funds in your limited company to buy with cash, then your company will need to be accepted on a mortgage to fund the purchase. It is possible, but not easy, to do this because most limited company mortgage lenders only want to lend to you for investment purposes; they will not allow you to live there. This means that there is likely going to be a restricted range of financing for you.
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.
If you were to sell your house to your limited company, not only would you have to pay stamp duty, you would also have 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. If it were sold at a discount, fair market value would override the sale cost.
Changing the ownership of the property from personal to company also means, usually, that the mortgage contract has to 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, legal fees and a valuation fee.
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 of 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 afford buying your property with your limited company, then some of your cash will be lost on the interest of this loan.
Want to sell your house?
At We Buy Any Home, our team of industry experts have vast experience in investment property sales, and have purchased numerous buy to let properties, which means your property sale is in safe, knowledgeable hands. If you want to sell your house fast, We Buy Any Home can help.
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