An article relevant to the tax year 2020/21
Pay Stamp Duty at 0.5% rather than Stamp Duty Land Tax
We have written an article that shows what Stamp Duty Land Tax is and how it is calculated. You may wish to calculate and save the SDLT liability. We have created a modestly priced spreadsheet for you to do this. Go ahead and buy the SDLT calculator for just £9.95
This article discusses all the different types of tax that you need to be aware of as a UK landlord. You may also be interested in reasons why people should and should not use a limited company to buy a property.
SDLT is charged on land and property. Buying shares in a company attract a different level of tax with Stamp Duty (SD) at 0.5%, which is considerably less than if you purchased several properties from an individual as you would have had to pay the normal scaled level of SDLT, plus the 3% surcharge.
So if you are looking to buy properties ensure that you buy the company that holds the properties to take advantage of the different stamp duty levels.
Once you have identified a company to purchase then you will need to buy the company in your own name or have it as part of your group of companies. You will need to complete a stock transfer form to ensure that the ownership changes hands.
And, of course, having properties in a limited company has the added advantage that you can offset all of your mortgage interest costs against your property income, which as a higher rate taxpayer you will soon not be able to do.
Download your buy to let tax guide here, written by our property accountants
SDLT comparison: buying a property against buying a company
John is looking to buy a property investment for £250,000. He is speaking with one landlord about buying the property that is held in a limited company. He is also offered to buy the limited company instead.
If he were to buy the property from the company then the SDLT charges would apply
£250,000 purchase price
£2,500 SDLT banded rates from the above table. The first £125,000 is not subject to SDLT. The second £125,000 is taxed at 1%
£7,500 3% SDLT surcharge tax rate
£10,000 total SDLT for buying a property investment with a value of £250,000
If John were to buy the company he would save a significant amount of SDLT.
£250,000 market value of the property
£150,000 mortgage on the buy to let investment properly within the company
£100,000 net asset value of the company
The Stamp Duty (SD) rate is 0.5% of the £100,000. The SD rate is £500.
John would save an incredible £9,500
ATED tax charges when buying residential property investments in a limited company
It was suggested that properties valued over £500,000 would be subject to Annual Tax on Enveloped Dwellings (ATED) when you buy a residential property into a limited company. This does not apply provided that the property is rented out. You will need to complete a form Annual Tax on Enveloped Dwellings (ATED): Relief Declaration Return to let HMRC know that the property is rented and that ATED should not be applied.