Forming a company

Kathryn asks:
(updated on Friday, September 11th 2020)

I purchased my first and only investment property a few years ago in my name only. I did not form a company but am wondering if I can do that now as my daughter and son in law want to buy a half share of the house and we will then hopefully purchase other properties together. Is this easily done?

Our Experts Answer:

Yes, you can form a company now and it is fair to say that a company is a good ownership structure for shared ownership of investment properties with your daughter and son-in-law. Having a company own properties that you buy together gives clarity of proportions of ownership through allocation of shares and allows for robust governance to be put in place through the execution of the shareholders’ agreement. There can also be advantages in terms of tax planning.

That said, there are some issues that need to be accounted for before you proceed. First, any disposal of the property from you into the company will need to be carefully considered so as not to trigger adverse tax consequences for you as a seller. Second, you will need to bear in mind that the transfer of the property into the company will see a reset of the five-year “bright-line clock”. It may be that you and your daughter and son-in-law intend to retain the property long term and therefore are not fussed about this, but it does mean a sale within five years of transfer could give rise to a taxable gain.

Finally, you will need to carefully consider how you are going to fund acquisitions and what agreement you are going to have between you in terms of differentials on capital input. It is best to seek advice from a range of professionals here including a competent accountant, a lawyer and a mortgage broker.

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