Converting house to flats- CGT etc?

[montydog]

I am considering converting my house to 3 flats and then getting 3 seperate mortages on each flat. Currently the house is in my name with a mortgage outstanding. It seems the best structure for me, when converted is to transfer the freehold to a company, with my wife as the the company. The company will grant me 3 leases in order to get the mortgages. Is this correct and what about tax implications.


Tony

[Tax Accountant]

I am considering converting my house to 3 flats and then getting 3 seperate mortages on each flat. Currently the house is in my name with a mortgage outstanding. It seems the best structure for me, when converted is to transfer the freehold to a company, with my wife as the the company. The company will grant me 3 leases in order to get the mortgages. Is this correct and what about tax implications.


Tony

You will need to consider the following:

(1) HMR&C Help Sheet IR283 states that you will nor ger PPR relief if you acquire a dwelling house and / or spend money on it in order to realise a gain on its disposal. Converting your house to 3 flats and then transferring the freehold to the company may fall foul of this.

(2) Transferring the freehold to the company will be considered a deemed disposal by you at market value and therefore you may crystalise a CGT laibility.

(3) You are proposing transferring the freehold to the company and then transferring the 3 x leaseholds back to you. Consider the stamp duty and other costs.

(3) Whether ownership is better in personal names or in company name is another subject.

You seem to be doing this to get a separate mortgage on each flat! Is this the only reason? If so, I would have thought that you could achieve this with the freehold in personal name(s) and re-mortgaging if necessary.

Ramnik