Property portfolio partnership incorporation used by landlords and property investors to save tax Why are man landlords paying much less tax than you? Many landlords have paid excessive taxes since the Section 24 mortgage interest relief cap came into play. Would you agree? Landlords can transfer their property portfolio business into a limited company to claim incorporation relief. This saves them a tax on CGT and SDLT via a partnership arrangement. Once your properties have been incorporated, you will benefit from HMRC’s many tax breaks. See how much tax you will reduce by using a limited company using our online buy-to-let property tax calculator. What are the basics of a partnership? Incorporation is the process of forming a property investment limited company via a partnership. This can either be a newly-formed company starting a new business or via the transfer of an existing property business into a newly-formed company. A property partnership can be incorporated with minimal tax charges. The property rental yield can be higher once a portfolio goes through incorporation into a company structure. Family wealth planning is also simpler when working with an incorporated limited company. There are several reasons why landlords transfer their property business to a limited company. One advantage of incorporation is a possible reduction in the tax charge on retained profits. Another benefit of lower tax rates in a limited company is that it can often lead to repaying property debt more rapidly than if owned directly. Incorporation involves the disposal of an existing business to a new company. This involves transferring the existing property business and its assets as a going concern. When incorporating a property partnership, the two main taxes for landlords to consider are Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT). Many landlords have incorporated their rental business into a limited company. Is it time for you too? Should I incorporate my property business as a landlord to get a tax relief? Owning a property portfolio through a limited company can offer a reduced rate of tax being applied to rental profits. Incorporation also helps landlords to side-step the restriction on tax relief for mortgage interest that applies to property held personally. You will see the tax benefits once your property investment partnership business has been incorporated. Do I pay SDLT on incorporation? Incorporation of a property portfolio is a legal transfer of ownership from an individual to a separate entity, the limited company. Incorporation will trigger SDLT and CGT tax charges. We can help you get incorporated without these tax charges. Can I avoid paying CGT? A limited company has separate legal and tax existence and transfers properties to a company that can trigger charges which may outweigh potential benefits. Transferring properties to a company you own will normally trigger CGT as if you had sold the properties at market value. Transferring properties to a limited company can trigger an SDLT charge for the company based on the property’s market value at the time of the transfer. In addition, as the company is a separate legal entity, any existing mortgages will need to be replaced. Sometimes this can be deferred until the end of any fixed mortgage period. The CGT charge can be avoided if the transferred property portfolio is a business for tax purposes. The difference between a property business and simply having property investments is down to the number of properties and the amount of time it takes to manage the portfolio. If the portfolio is a business, it should be possible to transfer the entire business to a limited company in exchange for shares in that company. This will prevent CGT from being triggered for landlords. The shares received in the limited company will have a reduced base cost for tax purposes, meaning that CGT may instead be due on any future disposal of those shares. The company is deemed, however, to have acquired the properties at their value at the date of incorporation. This means that the company will be taxable on any future growth in the value of the properties but not the growth before incorporation. Landlords will have transferred the properties into a limited company without incurring any CGT. While incorporation relief can avoid CGT on moving properties to a company, SDLT will still be due unless landlords are not just incorporating a business but a partnership. A partnership is a business carried out by two or more people. Unlike a business carried out by one person, it does not trigger SDLT when incorporated into a limited company in exchange for shares. In addition to demonstrating that a property business exists, the partners of a partnership must show that they are in business together. This means they must each have sufficient activities in business rather than holding property for investment. Anti-avoidance relief is in place to stop partnerships from forming to benefit from SDLT relief on incorporation. Ensuring a property partnership exists for three years before incorporation is recommended. Once there, you will be incorporated and benefit from the tax breaks identified in this page.