If you’re considering whether it is wise to transfer property to a limited company, and about the Stamp Duty implications of doing so, read our in-depth explanation.
(5-minute read)
We will cover:
- How Stamp Duty is calculated when you buy property through a company
- The scenarios in which you might benefit from transferring property to a limited company
Transferring Property to a Limited Company: Stamp Duty
If you want to transfer property to a company, you may need to pay Stamp Duty Land Tax based on the property’s market value, rather than the amount paid as consideration.
For example, consider a property that has a market value of £500,000, but the limited company pays a chargeable consideration of £200,000.
In such a case, the company will still be required to pay Stamp Duty based on the property’s market value of £500,000.
This rule applies in two scenarios:
1. If the person who is transferring the property has a relationship with the company. This includes relatives or individuals who are somehow connected to the company.
2. If the company uses its own shares, either partially or entirely, to pay for the property being transferred. In this case, if the person transferring the property has a connection to the company, even if it’s not the same company receiving the property, this rule still applies.
When purchasing additional residential properties, there’s a possibility of paying a higher rate of Stamp Duty Land Tax.
Transfer Residential Property to Limited Company
Now, let’s delve into the topic of transferring residential property to a limited company while avoiding Stamp Duty.
This is particularly relevant for landlords who currently own more than three properties in their own name.
In the past, it was common for landlords to own properties as individuals.
However, tax law changes implemented in 2017 by George Osborne have led to higher taxes for landlords.
As a result, landlords are considering transferring properties to a limited company to potentially lessen their tax obligations.
Transferring properties to a limited company offers several advantages.
For instance, it enables tax savings and smooth property transfer to future generations.
However, it’s important to emphasise that transferring properties to a limited company necessitates expert advice and guidance.
You should assess your tax situation, assets, liabilities, and other pertinent factors.
This personalised approach ensures that you receive tailored advice and guidance throughout the transfer process.
Transfer Property to Limited Company Without Stamp Duty Tax
Keep in mind that while you might not be able to transfer property to a limited company without incurring Stamp Duty, you might still be eligible for relief.
If you want to ensure eligibility for relief, it’s crucial to focus on the following:
- The property business must be a legitimate activity that generates income from profits.
- You must be active in the business, and involved in tasks such as property maintenance, rent collection, and tenant management.
By complying with the above conditions, landlords can potentially qualify for incorporation relief, resulting in exemption from both Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT).
This is encouraging news for landlords considering the transfer of property to a limited company.
Transferring Buy-to-Let to Limited Company
What about buy-to-lets?
If you own fewer than around ten buy-to-let properties for investment purposes and don’t run a proper lettings business, transferring properties to a limited company might not outweigh the costs due to potential tax complications.
However, if you have a significant lettings business, the main advantage of using a limited company to hold your properties is that you’ll pay corporation tax on profits instead of income tax.
This is currently charged at 25% main rate for this tax year.
As you can see, this is significantly lower than the higher rate (40%) and additional rate (45%) of personal income tax.
Nonetheless, it’s important to note that you may still be liable for income tax when you withdraw profits from the company.
When transferring buy-to-let properties to a limited company, consider the following key points:
- Limited companies may not qualify for incorporation relief and entrepreneurs’ relief.
- Dividends taken from the company are subject to taxation.
- Using a limited company structure can make sense if you don’t need immediate income or plan to manage a larger property portfolio as a full-time occupation in the long term.
Remember, the optimal holding structure depends on your unique situation.
If you’re unsure, reach out to us for advice.
Conclusion: Can You Transfer Property to Limited Company Without Stamp Duty?
In conclusion, transferring property to a limited company is a complex process and will require bespoke advice.
While it’s possible to transfer property to a limited company without incurring Stamp Duty, it’s crucial to seek specialised advice and guidance to navigate the process effectively.
The decision to transfer property to a limited company should be based on individual circumstances, taking into account factors such as tax obligations, rental profits, and long-term goals.
Our expert assistance can provide a thorough assessment and help determine the most suitable approach to help you maximise benefits and avoid tax traps.
Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190.
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