Our client is a banker working for a large investment bank. He wanted to rent out his existing home, releasing some of the equity to put towards the deposit of a new main residence.
The client wanted the purchase to be as tax efficient as possible and asked AWS Private Finance for help. As AWS Private finance do not provide tax advice, we asked the client to speak with a qualified tax adviser who could advise them on the most tax efficient solution that was right for their circumstances. After taking advice from them and consulting with ourselves that instead of a standard let-to-buy, which would incur a 3 per cent stamp duty surcharge, as well as him not being able to benefit from mortgage interest tax relief, he move his existing home into a limited company structure.
This would ensure his capital gains liability would be crystallized, while the rental income would fall outside his direct personal income tax, falling into the realm of corporation tax. There would be stamp duty to pay for moving his property into a limited company, but the onward purchase would be charged at the standard rate.
The equity in his current home would also be transferred to the limited company as a director’s loan. Meaning the deposit would effectively be equity rather than cash. The advantage of this would be that no cash changes hands. While the director’s loan account enables the client to withdraw the amount tax free as this is a loan from him to the company.
Key requirements: –
But, a lender who would lend the full £1.2mfor the mortgage on the new main residence.
So, lender who would lend £450,000 on the client’s existing home via a let-to-buy mortgage via a limited company structure.
Therefore, the lender prepared to offer full interest-only terms on both mortgages.
After sourcing the market, we identified a lender who was prepared to lend on these terms. The lender agreed to lend the full amount requested via two loans at competitive rates of interest.
The application process:
In other words, to support the loan applications, the client provided evidence of his income and identity. We were delighted to inform him that a lender had issued two formal loan offers for the full amount requested at competitive rates.
Monthly payment:£1,790 (residential); £1,21.25 (let-to-buy)
- Residential property value: £1.6m
- Let–to-buy property value: £600,000
- Loan amount: £1.2m on new residential property; £450,000 on let-to-buy
- LTV: 75% on both
- Rate: 1.79% fixed for five years (residential); 2.99% fixed for five years (let-to-buy)
- Lender product fee: £999 (residential); £1,995 (let-to-buy)