Property portfolio partnership incorporation for landlords and property investors to save tax
Many landlords have paid excessive taxes since the Section 24 mortgage interest relief cap came into play not knowing they can transfer their property portfolio business into a limited company to claim incorporation relief.
And with a partnership arrangement, savings can be made on capital gains tax and stamp duty land tax. 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.
Benefits of incorporation:
Here are just some of the benefits of incorporation:
Minimal tax charges
Higher rental yield opportunity with a company structure
Family wealth planning simpler
Possible reduction in the tax charge on retained profits
Pay off property debt faster than if owned directly
What exactly is incorporation?
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 or a newly-formed company starting a new business or via the transfer of an existing property business into a newly-formed company.
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?
What are the main taxes landlords should consider when incorporating a property investment partnership?
When incorporating a property investment partnership, landlords should consider Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT).
Is it time for landlords to incorporate their rental business into a Limited Company?
Many landlords have already incorporated their rental businesses into limited companies. It may be beneficial for you to consider this option as well.
Should I incorporate my property business to get tax relief?
Owning a property portfolio through a limited company can offer tax benefits, such as a reduced tax rate on rental profits and avoidance of restrictions on tax relief for mortgage interest that apply to properties held personally.
Can I avoid paying CGT when transferring properties to a limited company?
Transferring properties to a limited company you own typically triggers CGT, as HMRC treats it as a sale at market value. However, if the property portfolio is managed as a business for tax purposes, you may qualify for Incorporation Relief, deferring CGT.
What happens to existing mortgages when transferring properties to a limited company?
As the company is a separate legal entity, any existing mortgages will need to be replaced with new ones in the company’s name. Sometimes, this change can be deferred until the end of any fixed mortgage period.
How does the CGT charge get avoided when transferring a property portfolio?
If the property portfolio is considered a business, the transfer can be done without triggering CGT. The business must be actively managed with the intention of making a profit. In exchange for the properties, you receive shares in the company, which will have a reduced base cost for future CGT calculations.
What is the difference between a property business and property investments?
A property business involves managing a significant number of properties actively, with considerable time and effort spent on management. Simply holding property investments without active management does not qualify as a business.
How can transferring a property business to a limited company prevent CGT?
If the portfolio qualifies as a business, it can be transferred to a limited company in exchange for shares, preventing the immediate triggering of CGT. The company is deemed to acquire the properties at their market value at the date of incorporation, meaning future growth will be taxable, not past growth.
Does incorporating a property business avoid SDLT?
While Incorporation Relief can avoid CGT, SDLT will still be due unless the incorporation involves a partnership. A partnership, defined as a business carried out by two or more people, can transfer to a limited company without triggering SDLT if certain conditions are met.
How can landlords ensure their partnership qualifies for SDLT relief on incorporation?
Partners must show they are actively engaged in the business, not just holding property for investment. It is recommended to establish the partnership for at least three years before incorporation to qualify for SDLT relief and benefit from the associated tax breaks.
What are the steps involved in transferring property into a partnership as a Limited Company?
The steps typically involve:
Valuation: Determine the market value of your properties.
Set Up a Limited Company: Register a new company with Companies House.
Transfer Properties: Legally transfer the ownership of the properties to the limited company.
Mortgage Considerations: Refinance existing mortgages under the company’s name.
Tax Implications: Calculate and address any CGT and SDLT liabilities.
Professional Advice: Engage with legal and tax advisors to ensure compliance and optimize tax relief opportunities.
What are the long-term benefits of owning properties through a Limited Company?
Long-term benefits include:
Tax Planning: Potential for more flexible tax planning and reduction of personal tax liability.
Retained Profits: Ability to retain profits within the company to reinvest in further property purchases or other investments.
Estate Planning: Easier transfer of company shares to family members, which can facilitate inheritance planning.
Professional Image: Operating as a limited company can enhance your professional image and credibility with lenders and business partners.
Are there any restrictions on the types of properties that can be transferred to a Limited Company?
Generally, there are no restrictions on the types of properties that can be transferred. However, the properties should be part of a business, not just personal investments. Properties that are part of a trading business are more likely to qualify for certain tax reliefs.
Can I still claim tax relief on expenses incurred by the property business after incorporation?
Yes, a limited company can claim tax relief on various expenses incurred in running the property business, including mortgage interest, maintenance costs, property management fees, and other operating expenses. These can help reduce the overall taxable profits of the company.
Additional resources
What is a property investment company
Withdraw money from a Limited Company
Stamp duty land tax
Optimise Accountants
Contact us to learn how we can support your property investment journey. Our expertise lets you make informed investment decisions and achieve your financial goals.
We provide tailored advice on incorporation, business structures for tax planning, maximizing ROI, and rental yields, ensuring compliance with tax regulations.
Call 0115 939 4606 or book a one-to-one personalised Limited Company and tax consultation with Simon Misiewicz as seen on You Tube.
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