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That said, certain reliefs, such as Incorporation Relief, may help mitigate these costs if your property business meets specific criteria. This guide explores these options and why consulting a tax expert is essential.
In October 2024, the SDLT surcharge for additional residential properties, including those transferred to a limited company, increased from 3% to 5%.
How It Works:
Example:
Total SDLT Due: £20,000
While avoiding SDLT entirely is rare, certain reliefs and exemptions may apply if your property business qualifies.
Incorporation Relief can help landlords defer CGT liabilities when transferring property to a limited company. In some cases, it can also provide relief from SDLT if specific criteria are met.
Key Conditions:
The property business must be a legitimate trading activity that generates income from profits (e.g., rental income).
You must be actively involved in managing the business, including tasks like:
Important: The business must operate as a going concern, with multiple properties often being a key factor in qualifying for relief.
If the property is owned by a partnership and transferred to a limited company, Partnership Relief may apply.
Key Conditions:
Example:
A group of family members operates a partnership managing five rental properties. When transferring these properties to a limited company, they qualify for SDLT relief under Partnership Relief rules.
If you don’t qualify for Incorporation or Partnership Relief, the transfer will be treated as a standard sale, triggering SDLT and CGT liabilities.
Example Without Relief:
Scenario:
A landlord owns a single buy-to-let property valued at £250,000 and transfers it to a limited company.
Liabilities:
Result: Without relief, the combined tax liabilities can significantly increase the cost of the transfer
Despite the upfront costs, transferring property to a limited company offers long-term financial benefits:
Limited companies pay Corporation Tax on profits (currently 19%), which is lower than higher personal tax rates (40% or 45%).
Full mortgage interest relief is available for
limited companies, unlike individual landlords.
Retained profits within the company can be reinvested tax-efficiently to expand your property portfolio.
Limited companies can be structured in a way that minimises Inheritance Tax (IHT) liabilities, such as through trusts.
Result: The transfer qualifies for Incorporation Relief, eliminating both SDLT and CGT liabilities.
.
Result: Partnership Relief exempts the transaction from SDLT, reducing the cost of the transfer.
Navigating tax reliefs and exemptions requires professional guidance. A tax expert can:
Important: Auction Finance provides mortgage advice but is not authorised to offer tax advice. Always consult a qualified tax professional before making decisions about property transfers.
Ans: The 5% SDLT surcharge applies to all additional residential property purchases, including those transferred to limited companies.
Ans: This depends on your long-term investment strategy and tax position. Consult a tax advisor to evaluate your options.
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