Picture the scene. You are a broker with a landlord client who wants to purchase a portfolio of three properties, each valued at £500,000 and all held within a single SPV.
The client asks about the expected stamp duty costs.
To assist, you use an online calculator, which indicates a total stamp duty of £120,000 (3 x £500,000 at 8%).
The client is resigned to the cost and asks about next steps.
Before you respond, you tell them there is a way to buy all three while significantly reducing their stamp duty bill by £112,500.
Suddenly, the client’s demeanour changes and they ask: "How?" You inform them that this can be accomplished by purchasing the SPV and that they should seek detailed tax advice from an expert.
This is a scenario the team and I at Keystone are coming across a lot more, even though this option remains largely unknown to most brokers and landlords.
The approach creates the same result, but instead of buying the underlying properties one by one, your client buys the company that holds them.
That is because when you buy the shares of a limited company rather than the property it owns, you are not acquiring land, so SDLT does not apply. Instead, the transaction attracts stamp duty on the shares, which is currently charged at 0.5%.
However, as effective as it is at reducing the buyer's SDLT bill, there are a few things you and your client need to consider if you were to go down this route.
Firstly, it is important to note that while the properties do not move, the ownership of the company does, so the existing loans attached to each property must be repaid. The transaction is therefore a remortgage rather than a purchase.
It is also important to note that both the acquiring and selling SPVs must have clean credit histories. There will be higher legal costs, due to the added due diligence involved.
This sort of transaction should not be viewed as a way of avoiding tax either, as while the buyer may save on SDLT, deferred corporation tax and other liabilities may apply. It is vital therefore that your client seeks advice from a qualified tax adviser.
From a broker's perspective, it is worth knowing that very few lenders will consider a share purchase transaction – Keystone being one of a small number of lenders that will support these transactions. Further, those that do rarely publish set criteria for this type of lending, as no two cases are alike. Each is manually underwritten on its own merits.
Niche as this approach is for now, we believe that it will become increasingly common in the years ahead, simply because of the continued popularity of limited company vehicles.
A record 66,587 buy-to-let limited companies were set up last year, bringing the total to 443,272. That’s almost five times the number there were in 2016, according to estate agent Hamptons. They have also estimated that around 1.5 million rental homes are held within these company structures.
As more portfolios sit within corporate structures, more landlords will look for tax-efficient ways to buy, sell and reshape them.
You do not need to become a tax expert to help them. Simply being aware that this option exists and which lenders will lend on these cases is a straightforward way of demonstrating your value to clients and, of course, potentially saving them money.
