Disclaimer: Please be aware that this blog post is for informational purposes only and does not constitute legal or financial advice. The process of transferring property is complex and carries significant legal and tax implications. Always consult with a qualified professional, such as a solicitor, accountant, or tax advisor, to discuss your specific circumstances and ensure you are acting in full compliance with the law.
Main Summary: Transferring Property to a Limited Company
Transferring a property you own personally into a limited company is not a simple administrative change – it’s legally treated as a sale. This means you will likely trigger a Capital Gains Tax (CGT) liability on any increase in the property’s value since you acquired it. The company will also have to pay Stamp Duty Land Tax (SDLT) on the market value of the property, even if you sell it to the company for a nominal amount. While there are potential long-term tax benefits, the immediate costs are substantial. The only way to potentially defer these costs is if you can prove you run a genuine “property business” and can claim Incorporation Relief.
The Nitty-Gritty: A Detailed Breakdown
Transferring a property to a limited company has become a popular topic since changes to personal landlord tax relief came into effect. However, the process is far from straightforward. Here’s what you need to know.
It’s a “Sale” in the Eyes of the Law
From a legal and tax perspective, you are “selling” the property to a separate legal entity—the limited company. This isn’t a simple name change on the deeds. You will need to engage a solicitor to handle the conveyancing, just as you would for a regular property sale. This means:
- You (as the seller) will be liable for Capital Gains Tax (CGT). The gain is calculated as the difference between the property’s market value at the time of transfer and its original cost, plus any acquisition and improvement costs. For residential property, the CGT rates are % for basic rate taxpayers and % for higher rate taxpayers.
- The company (as the buyer) will be liable for Stamp Duty Land Tax (SDLT). SDLT is charged on the market value of the property, not the price you decide to “sell” it to the company for. Because the company is an entity and the property is an “additional dwelling,” it will be subject to the higher rates of SDLT.
The Big Exception: Incorporation Relief
This is the golden ticket that many landlords hope to qualify for. Incorporation Relief allows you to defer the CGT and, in some cases, the SDLT, that would normally be triggered by the transfer. The catch? You must be able to prove to HMRC that you are running a “genuine property business,” not just a passive investment portfolio.
This is a high bar to clear. HMRC’s criteria are not explicitly defined, but key factors include:
- The scale of your portfolio (the more properties, the better).
- The amount of time you spend on property-related activities (some case law suggests this needs to be at least hours per week).
- The range of activities you carry out, such as finding tenants, managing maintenance, and handling finances in a way that goes beyond a standard landlord’s duties.
Without this relief, the immediate tax costs of the transfer will likely outweigh any potential long-term benefits.
What About Mortgages?
This is another major hurdle. If the property has an existing mortgage, you cannot simply transfer the loan to the company. The existing mortgage will need to be repaid in full, and the company will need to secure a new mortgage in its name. Lenders who provide mortgages to limited companies typically offer different terms, often at a higher interest rate, and may require you to provide a personal guarantee.
Ongoing Costs and Administration
Once the property is in the company, a new set of responsibilities kicks in:
- Corporation Tax: The company’s rental profits will be subject to Corporation Tax, not personal Income Tax. While the current rates may be lower than higher-rate Income Tax, you will have a separate tax to deal with.
- Administrative Burden: You’ll need to maintain proper company accounts, file annual returns with Companies House, and complete Corporation Tax returns with HMRC. These tasks often require the services of a professional accountant, adding to your running costs.
- Profit Extraction: When you want to access the profits from the company, you will likely do so by paying yourself a salary or dividends. This will trigger personal Income Tax.
In short, while moving a property to a limited company can offer long-term tax efficiencies, the immediate legal, financial, and administrative complexities are significant. This is a journey you should only undertake with the careful guidance of legal and tax professionals who can model the costs and benefits for your specific situation.
