Sell Commercial Property to buy PPR

Ever heard of this one?

Figures are for illustrative purposes and rounded up to make it easier to understand…I hope?

Two people recently married.

Husband has shop which he bought a number of years ago and which is rented to a tenant on a 25 year lease at a rent of E10,000pa. Outstanding borrowing is E100,000 and property has a market value of E200,000.

Husband and wife now wish to buy a PPR for E100,000.
They could simply borrow E100,000 on the house and claim mortgage interest relief.

Could it not be done a more tax efficient way?

In order to do this Husband ‘sells’ shop to Wife who borrows E200,000 and pays it over to Husband. He pays no CGT and she pays no stamp duty as they are spouses. He pays E100,000 back to the original lender and uses the other E100,000 to buy the PPR outright.

Wife now uses the rent received from tenant to contribute towards paying off her loan along with the money they had earmarked to pay a mortgage. This situation allows her to claim all the interest on the commercial loan against rental income and is therefore more tax efficient as they are offsetting interest on 200k now rather than 100k. They still own the shop and have their PPR.

Any thoughts or comments?

Yes, it works. I did hear a tax consultant outlining this about a year ago. But take tax advice before you do it, as I seem to remember that there were restrictions.

One interesting restriction, which does not affect you, is that it works only for commercial property - residential investment property is specifically excluded.

Brendan

Thanks for the reply Brendan, I will certainly take advice before going forward.

Does this work only in the case of purchasing PPR for the first time?

If I were to sell a 'buy to let' property to my wife would the same efficiencies apply?