Inherited Ltd company with a property - close down or retain?

[kryten22uk]

Am going through probate and have inherited a Ltd company in which there is just one rental property (no rental income though as a golddigga got a rent free life interest!). So I have to act as landlord on a lifetime rent-free property.

So this will be a Ltd company that has no money but will incur costs for a number of years. Would i be best keeping the property in the Ltd company, as despite the associated costs (accountant etc) I would only incur 19% corp tax on property gains versus the 28% I would incur as capital gains tax if I closed company and held the property as a personal 2nd home?

Ta

[Lance]

The property might not go up in value that much. The area and the number of estimated years are key factors.
Can you not write off any growth in value against the losses incurred over the years?
Personally though, I’d be inclined to seek some professional legal advice. You have a fiduciary responsibility to the shareholders, and running the company at a loss doesn’t sound like representing the shareholders interests. If the company suddenly had to find cash for a major repair are you going to throw more cash in, or let it go insolvent, and be forced to sell the property and liquidate the company?
I don’t know about your relationship with the golddigga so that’s for you to decide, but I can’t see how a lifetime rent free deal, via a LTD. should work anyway.

[kryten22uk]

I'm the only shareholder. To any fiduciary is to myself.
The lifetime interest is an out of court settlement to a legal dispute. So it is a solid contractual agreement for the owner of the property (the Ltd co.) to allow the tenant to live in the property rent free until they die (or earlier ill-health exit).

I presume that the contract is transferrable if I wanted to "buy" the property from the Ltd company and shut the company down.

But you're right that the property (it's not that great a place) may not really go up much in value.

[Lance]

I'd assumed you're the sole shareholder. The fiduciary responsibility still stands though.

I doubt the contract would be transferrable unles you wanted it to be. A LTD company is a legal entity separate to you. Unless there's something in the company's articles that negates it then I'd suggest that the legal ersponsibility to the tenant can only ever be the LTD company (or the previous shareholder).

I am not a lawyer though so it's worthwhile having a phone call to see if you have options. In particular I'd explore what would happen if the LTD became insolvent.
It may well be that the legal settlement died with the previous shareholder. Read that settlement. It may not have a clause about the current situation.


I'd leave it in the LTD. though, whatever you do. If you transfer it to your own name and accept the responsibilities of the previous settlement in your own name you have less options. And if you own it, and the responsibility, and it starts to fall down then you have a lot of bills to pay and no escape route. Tax efficiency would be the least of your worries.

[simes]

Can I ask a couple of questions?

1. Is there still a mortgage on the property? If so, who is paying that?
2. Even though the property is let, rent free, whose responsibility is it for the upkeep? Boiler, roof, plumbing etc. Is it yours, or the tenant's?
3. How old is the tenant? Is he likely to pass on before you?

Not having ever heard of a situation like this, am just wondering if there are no costs going out against no income, can you just ride him out until he calls it a day, and then sort the property out?

[WordIsBond]

Those are good questions.

If there are any maintenance costs, etc, those will be year on year corporation losses, which I think could eventually be offset against capital gains when the property is sold. But if there are no gains on it then those corporate losses would have to be funded by you with no tax benefit.

If you own any other rental properties, then those losses could be offset against profit on your other properties, as long as they are owned by the same entity. So in that case you might want to either move this property into your personal portfolio or move one or more other properties into the corporation.

If there's no anticipated costs (other than accountancy fees, and you might be able to treat it as a dormant company if there are no transactions), then the above is probably irrelevant.

But it would be a shame not to find a way to get some tax benefit out of it if you are going to have to be feeding money into this thing to keep it going. If that's the case, I hope enough liquids asset were left to cover that. Obviously, as it stands right now you personally would have no legal obligation to do anything with the property at all. But depending on anticipated lifespan of the tenant and estimated value of the property, you probably want to protect its value.

[LondonPM1]

Those are good questions.

If there are any maintenance costs, etc, those will be year on year corporation losses, which I think could eventually be offset against capital gains when the property is sold. But if there are no gains on it then those corporate losses would have to be funded by you with no tax benefit.

If you own any other rental properties, then those losses could be offset against profit on your other properties, as long as they are owned by the same entity. So in that case you might want to either move this property into your personal portfolio or move one or more other properties into the corporation.

If there's no anticipated costs (other than accountancy fees, and you might be able to treat it as a dormant company if there are no transactions), then the above is probably irrelevant.

But it would be a shame not to find a way to get some tax benefit out of it if you are going to have to be feeding money into this thing to keep it going. If that's the case, I hope enough liquids asset were left to cover that. Obviously, as it stands right now you personally would have no legal obligation to do anything with the property at all. But depending on anticipated lifespan of the tenant and estimated value of the property, you probably want to protect its value.

You can put these regulated investments into auction and cash them out today if you want - There are long term companies that buy these and wait for the person living there to die

[kryten22uk]

The golddigga is a lady about 65yrs old. The contract isn't actually in place yet, it is in final stages of being written by the lawyers. It arises as a result of the probate. So the lawyers are currently writing it between the Ltd co and the lady, mainly be side that is the current legal ownership. I still have the option of getting them to write it to be a personal contract if the property is transferred out of the Ltd co asap. The contract currently being written such that I have responsibility for structural issues/repairs, but she is responsible for everything else.

There is no mortgage. Don't own any other rental properties.

[simes]

Would moving the property from LtdCo to a personal name not also incur stamp duty charge? And, would that be a stamp duty of Letting size (even if no rent is being paid) or Residential?

If so, there is a loss right there. Or, at least, the need to stump up some cash for no good reason.

Tough one. Am interested in the outcome.

[kryten22uk]

Would moving the property from LtdCo to a personal name not also incur stamp duty charge? And, would that be a stamp duty of Letting size (even if no rent is being paid) or Residential?

Ah yes, forgot about stamp duty.