This is absolutely legit and can allow you to keep your residential property and avoid paying 6% ADS (3% in England) on your new house purchase. This case study is about someone who wanted to retain their existing residential property, turn it into a BTL and then buy their dream property. We can save some ADS by buying the existing residential property through a limited company freeing you to buy your dream property without having to pay ADS on that.
Here are the steps that we went through.
You need to set up a limited company with the correct SIC codes. This identifies to the lender what the company does.
The lender for the limited company will carry out a valuation. This will be bought the property is sold for and what the ADS will be based upon.
You will need to appoint a solicitor to act on behalf of the limited company and also for yourself as the seller. If you are an existing client of your solicitor then the solicitor may be prepared to act on behalf of both the purchaser and seller which should save you some money.
You may not necessarily need to provide any deposit on the basis that there should be sufficient equity within the existing residential property. The lender for the limited company will be looking for at least a deposit of 25%.
From a practical point of view, the lender for the limited company will pay off your existing residential mortgage and the property will be transferred to the limited company. The deposit will be transferred into a director's loan. You should definitely speak to an accountant so that you can understand the concept of a director's loan.
In our case study, we waited until the client had been successful with an offer for their new residential property before making the transfer. In essence, the transfer happened on the same day. The limited company will have to pay ADS on the purchase price of your residential property but this means that you will not have to pay ADS on you the purchase of your new residential property. On the basis that your new residential property is probably going to be more expensive than your existing one then there is going to be a saving of ADS.
If this is something that you are thinking about then please do not hesitate to contact us and we can do some research to see what the best options are for a limited company buy to let.
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