Accounting for transferring a mortgage with less cash than the value of the loan.

Discussion in 'Accounts & Finance' started by GranulatedSheffield, May 15, 2019.

  1. GranulatedSheffield

    GranulatedSheffield UKBF Newcomer Free Member

    2 0
    I am transferring a property into a ltd company, it has a mortgage for 70k but only 22k cash is coming in from the remortgage. I am thinking I account for it as if the company is paying 48k for the house then revalue at year end so it in effect goes straight to profit or loss as a loss. Am I right in thinking that way? Could i just put the loan straight to profit or loss and buy the property for £0? cheers for any answers.
     
    Posted: May 15, 2019 By: GranulatedSheffield Member since: May 15, 2019
    #1
  2. Mitchells Bristol

    Mitchells Bristol UKBF Ace Full Member

    1,380 385
    Hello there

    I may have misunderstood the question - but the transfer of a property to the limited company will be deemed to take place at market value. So the acquisition price and the balance sheet value for the limited company will be the market value, I guess creating a director loan account balancing owing to you for this amount, potentially? The sale proceeds in your personal hands will be the market value.

    Presumably the property is then refinanced in the limited company to generate the £22k refinance, which can then be advanced to you personally against the director loan account, to part-clear the £70k mortgage?

    Sorry slightly vague - probably need more information to help further
     
    Posted: May 17, 2019 By: Mitchells Bristol Member since: Nov 24, 2011
    #2
  3. GranulatedSheffield

    GranulatedSheffield UKBF Newcomer Free Member

    2 0
    Hi Thanks for the answer,
    So I thought I would debit assets at zero, not market value because a credit value to DLA wouldn't reflect a true and fair view if the company doesn't owe me anything, I thought equity would increase. Does a gift have to be accounted for at market value no matter what?

    Really the company is gaining a free asset with the condition of taking on a loan (paying for the property by the difference in cash and loan value). If I treat it as a refinance is this what I would do: DR Cash 22k, CR Loan 70k, DR PL 48k. Its that last DR I'm worried about.
     
    Posted: May 18, 2019 at 8:15 AM By: GranulatedSheffield Member since: May 15, 2019
    #3
  4. Mitchells Bristol

    Mitchells Bristol UKBF Ace Full Member

    1,380 385
    Hello there

    The transfer in the first instance would have to be at market value, assuming no holdover relief Is available.

    What is the value of the property being transferred, doe the transfer give rise to Capital gains tax and Stamp Duty Land Tax
     
    Posted: May 18, 2019 at 7:39 PM By: Mitchells Bristol Member since: Nov 24, 2011
    #4