How have things changed under new LTC rules?
Question from Duncan updated on 30th June 2011:
Our expert Mark Withers responded:
Until very recently it was felt that the new LTC couldn't be used to effect the type of restructure you refer to in the same way an LAQC could because of its transparent nature for tax purposes where assets are deemed for tax purposes to be held by the shareholders.
However, IRD have recently issued statements confirming that their interpretation of the new LTC law is that interest deductions will remain valid in the LTC is circumstances such as yours. Just an additional note of caution, these restructures are most common when someone transitions their own home to become a rental, in your case where the existing rental property with the equity is being restructured you will need to be concious of the tax avoidance rules that can relate to any transaction entered into solely to defeat the incidence of tax.
To avoid this suggestion there should be other commercial reasons for the transaction, for exemple, perhaps a genuine transfer of ownership by including your wife as a shareholder in the purchasing entity may be appropriate or perhaps you can include this as part of a greater restructure of your overall affairs for estate planning purposes.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.