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This guide explains the key tax considerations, benefits, and potential pitfalls of transferring properties into a limited company, helping you make an informed decision.
When transferring property ownership, you may need to pay Capital Gains Tax (CGT) on the increase in the property’s value since you originally purchased it.
How It Works:
CGT is calculated as the difference between the property’s market value at the time of transfer and its original purchase price.
The tax rate depends on your income tax band:
Example:
Taxable Gain: £94,000
CGT (at 28%): £26,320
Exceptions:
If the property qualifies as part of a business (e.g., a property portfolio with multiple properties), it may be possible to defer CGT using Incorporation Relief.
Your limited company will need to pay Stamp Duty Land Tax (SDLT) on the market value of the property at the time of transfer.
Key Considerations:
Higher SDLT Rates: Limited companies pay an additional 3% surcharge on residential properties.
The SDLT applies to the current market value, not the outstanding mortgage balance.
Example:
Total SDLT: £10,000
Exemptions:
Transferring properties within a partnership or through specific trust structures may qualify for SDLT relief, but these are complex and require expert advice.
When transferring a property with an existing mortgage into a limited company:
Tip: Work with a broker experienced in limited company mortgages to secure competitive terms.
Despite the upfront costs, there are significant long-term benefits to transferring properties into a limited company.
Individual landlords can no longer deduct full mortgage interest due to Section 24 changes.
Limited companies pay Corporation Tax on profits (currently 19%), which is lower than higher-rate income tax rates (40% or 45%).
Profits can be retained within the company and reinvested in additional properties, enabling faster portfolio growth.
Placing a limited company into a trust can offer inheritance tax advantages, helping you pass on wealth more efficiently.
Scenario: A landlord with three buy-to-let properties generating £30,000 annual rental income faces rising income tax bills.
Solution: The landlord transfers the properties into a limited company.
Scenario: A landlord with five properties wants to grow their portfolio but struggles with personal borrowing limits.
Solution: By incorporating, the landlord accesses higher borrowing potential through limited company buy-to-let mortgages, enabling faster portfolio growth.
We are authorised to provide mortgage advice only. For tax advice, please consult a qualified tax professional before making any decisions related to transferring properties into a limited company.
Ans: Yes, but the process is complex and may involve higher upfront costs, including SDLT on the total portfolio value.
Ans: Yes, Incorporation Relief can defer CGT if the properties qualify as a business. Consult a tax adviser to confirm eligibility.
Ans: Yes, retained earnings or equity release can be used to finance new property investments.
Ans: Yes, but they typically prefer SPVs with no trading history. Ensure your company is correctly set up with the right SIC codes.
Ans: This depends on your portfolio size, tax bracket, and long-term goals. Always seek professional advice before proceeding.
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