Selling rental property to my Limited company

Hi
I am looking in to sell my rental property to my Limited company (it’s a closed company)

Limited company profit €450,000

Market value of the rental property €430,000

Mortgage balance is €260,000

Equity €170000

It’s on tracker mortgage, interest rate has gone up to 6%.have to pay €500 out of my pocket per month to pay the mortgage.


I am thinking of selling it to my company
Releasing the equity and pay off the mortgage of my primary residence.

Do you think it’s good idea.

No. It's a terrible idea.

You will have a limited company which owns a rental property. When you sell the property and company you will pay CGT twice.

If your tenants mess you around, you will have a limited company taking them to the courts rather than an individual.

I presume you mean accumulated profits of €450k. On what basis did you come up with that financial plan?

Talk to an accountant. Take the money out of the company. Pay the tax and then clear your mortgage.

Brendan

thanks Brendan

please note
I have to pay 52 % tax if I take the money out on top of Corporation tax already paid.

Thought it will be saving lot of tax, clear the rental property mortgage and release the equity

do you think it’s a bad idea?

FNAWAN said:

thanks Brendan

please note
I have to pay 52 % tax if I take the money out on top of Corporation tax already paid.

Thought it will be saving lot of tax, clear the rental property mortgage and release the equity

do you think it’s a bad idea?

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It's much easier for you just to sell it to get at the equity. How much CGT would you have to pay. Also how much is your rent and how much is your mortgage? I don't understand how posters think we can give an opinion when they give us the bare bones of a notion of any figures.

Why do you want to pay down your house mortgage. Any chance of figures on that. In fact you need to do the Money Makeover thread.

There are loads of threads on why it's a really bad idea to have rental property in a company.

Hi Bronte
Thanks for your reply
yes selling is a possibility, however the idea is to save the tax.

No CGT is applicable
rent €1500
Mortgage is €2000

I haven’t factored
maintenance fee, House insurance, mortgage protection and income tax
It come around € 400 per month


mortgage on primary residence €850,000
I could pay off 50% of this amount with the equity plus savings

FNAWAN said:

Hi Bronte
Thanks for your reply
yes selling is a possibility, however the idea is to save the tax.

No CGT is applicable
rent €1500
Mortgage is €2000

I haven’t factored
maintenance fee, House insurance, mortgage protection and income tax
It come around € 400 per month


mortgage on primary residence €850,000
I could pay off 50% of this amount with the equity plus savings

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It's like dragging teeth. How much is your mortgage a month. And what is the interest rate? That's a heck of a mortgage.

But what's worse is the rental is giving you 4% which is atrocious. With rent not even covering mortgage. So that's a clear sell. With no doubt the dreaded RPZ at play too.

850 / 2 = 425 - 170K = savings of 255. You won't end up with 170K, it will be 160K.

You definitely need to do the money makeover. Do you know what I am referring to? Bad time of year to sell too. Are you certain of your values?

FNAWAN said:

I have to pay 52 % tax if I take the money out on top of Corporation tax already paid.

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Go back to whoever drew up the plan to encourage you to pay Corporation Tax instead of extracting the profits back then.

You are going to have to pay tax anyway. You might as well pay it now.

You will be paying CGT twice on any increases in the property price if your company buys it. And then you will post here in a few years' time "Why do I have to pay CGT on the liquidation of the company when I have already paid CGT on the sale of the property?"

Brendan

Bronte said:

It's like dragging teeth. How much is your mortgage a month. And what is the interest rate? That's a heck of a mortgage.

But what's worse is the rental is giving you 4% which is atrocious. With rent not even covering mortgage. So that's a clear sell. With no doubt the dreaded RPZ at play too.

850 / 2 = 425 - 170K = savings of 255. You won't end up with 170K, it will be 160K.

You definitely need to do the money makeover. Do you know what I am referring to? Bad time of year to sell too. Are you certain of your values?

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No clue about money make over
Please advise
Thanks

FNAWAN said:

No clue about money make over
Please advise
Thanks

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Here you go, give as much detail as possible. Clearly you need to be a bit circumspect, So don't give location, and make up ages of people so nobody can pin it to your family/situation. If you're a plumber you say you're an undertaker etc.

Brendan Burgess said:

Go back to whoever drew up the plan to encourage you to pay Corporation Tax instead of extracting the profits back then.

You are going to have to pay tax anyway. You might as well pay it now.

You will be paying CGT twice on any increases in the property price if your company buys it. And then you will post here in a few years' time "Why do I have to pay CGT on the liquidation of the company when I have already paid CGT on the sale of the property?"

Brendan

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No CGT applies if company buys the rental property as the value of the property hasn’t increased, will break even.

FNAWAN said:

No clue about money make over
Please advise
Thanks

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Hi FN

If the property is worth €430k today and you paid €430k for it, you will not pay any CGT on selling it to the company.

But in ten years, when the company sells the property for say €100k gain, it will pay 33% CGT or €33k on it.
The company itself will be worth €67k more when you sell it, so you will pay 33% on the €67k or €22k
So you will end up with €43k

If you hold onto it and sell it for €100k more, then you will pay €33k CGT and end up with €67k.

If you hold onto it and it falls in value, you will be able to use the CGT loss.

Brendan

If the shares in the co are sold it will trigure one CGT so this could be another option.

Yes, but anyone buying a rental property via a company will adjust the price for the unrealised CGT liability.

Bronte said:

Here you go, give as much detail as possible. Clearly you need to be a bit circumspect, So don't give location, and make up ages of peo

Click to expand...

Bronte said:

Hi FN

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Brendan Burgess said:

If the property is worth €430k today and you paid €430k for it, you will not pay any CGT on selling it to the company.

But in ten years, when the company sells the property for say €100k gain, it will pay 33% CGT or €33k on it.
The company itself will be worth €67k more when you sell it, so you will pay 33% on the €67k or €22k
So you will end up with €43k

If you hold onto it and sell it for €100k more, then you will pay €33k CGT and end up with €67k.

If you hold onto it and it falls in value, you will be able to use the CGT loss.

Brend

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Hi Brendan
You asked on what basis I came up with the plan of selling my rental property to my limited company

Here are some details


If I keep the rental property and factor overheads, including, mortgage income tax, repairs and maintenance fee, LPT, House insurance, Mortgage protection total is around €900 /month = 10800per annum = €108000 in 10 years.

As mentioned I bough the property at the hight of the market in 2007. I doubt it Will appreciate in value in 10 years.



If I sell it to my company, (mortgage paid)

I am thinking of following benefits

€260000 Less mortgage burden
no worries, if don’t find a suitable tenant and property is vacant for few months.

bit of cash flow personal finance

Rental income will generate some cash flow for the company and deal with overheads

thinking of disposing the company and the property Under retirement relief provision.

Pleased don’t kill me if all the above is nonsense. Just sharing with you the thought process.

What’s your expert opinion.
Thanks again

Hi Brendan
Also can pay off 50% of my family home mortgage as well with the equity released from the sale of rental property and savings

FNAWAN said:

€260000 Less mortgage burden
no worries, if don’t find a suitable tenant and property is vacant for few months.

bit of cash flow personal finance

Rental income will generate some cash flow for the company and deal with overheads

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I don't really follow your figures.

But it sounds as if you are saying that it's not a great investment.

If it's not a great investment, then dispose of it.

Selling it to your company won't turn a bad investment into a good investment.

Brendan

Hi Brendan and Brontë
Thanks for your advice
Definitely not incorporating the BTL property

Brendan Burgess said:

I don't really follow your figures.

But it sounds as if you are saying that it's not a great investment.

If it's not a great investment, then dispose of it.

Selling it to your company won't turn a bad investment into a good investment.

Brendan

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