Is it time to incorporate your properties into a limited company? Transferring properties into a limited company Incorporation Relief – Transfer properties into a limited company Tax benefits of property incorporation Incorporation Relief – Transfer properties into a limited company Mitigate the impact of Section 24 mortgage interest relief UK Corporation Tax Taxes For Limited Companies & How to Reduce It Are you looking to reduce tax by transferring your property portfolio business into a limited company? It is possible to transfer your property to a limited company without overpaying taxes to HMRC. Start the incorporation process today, and save tax tomorrow. Tell us about your property portfolio, and we will contact you to provide some solutions. There is a lot of worry and concern for landlords that look to incorporate their portfolios. They would have heard you pay Stamp Duty and CGT when you incorporate properties. This is true, but these taxes may also be avoided using incorporation relief. Is it time to transfer your property portfolio to a limited company? The role of tax planning ensures that landlords keep more of the money they earn through their rental property business rather than giving it to HMRC. Incorporation relief provides a great opportunity to save SDLT & CGT whilst saving income tax in the long term. How much property tax are you paying? Feel free to use our free online property rental income tax calculator to find out. Increasing property tax for landlords - Incorporation relief - Section 24 loophole From 6 April 2017, Section 24 of the Finance Act means that mortgage interest relief no longer benefits from full tax relief. Most landlords will pay more income tax on their buy-to-let properties. This is because you cannot deduct mortgage interest costs from your property income to calculate income tax. Landlords choose to incorporate their property portfolio into a limited company to save the abovementioned issues. Is it time you investigated the incorporation process of your portfolio? You need answers to ensure that incorporating your portfolio makes sense. You need to invest significant time and money in the incorporation process. Work with a tax advisor to give you comfort and confidence. You could say that landlords using a UK-limited company to incorporate their property portfolio is a Section 24 loophole. Many landlords that conduct thorough tax planning with their accountants will save money from HMRC. Have you worked out the benefits of incorporation relief? Section 24 mortgage interest relief cap impact on landlords holding their portfolio in their names £50,000 rental gross profit (£20,000) mortgage interest cost £30,000 real profit (£20,000) tax (as a high rate taxpayer paying 40% on the £50,000 gross profit) £4,000 add back the 20% tax relief on the mortgage interest £14,000 rental profits on a rental business in personal names Landlords incorporating their property portfolio in a limited company £50,000 rental gross profit (£20,000) mortgage interest cost £30,000 real profit (£5,700) tax (at 19% corporation tax rate) £24,300 rental profits on a rental business in a limited company after incorporation. Have you done enough tax planning yet? Typically we find that HMRC requires a partnership to be in place to allow incorporation relief. This can be in the names of the husband and wife or in a family-owned Limited Liability Partnership (LLP). The transfer of properties into a company is not too difficult when you use property tax specialists. Incorporating properties into a company without specialists can be very risky. Why incorporating properties into a business LTD? Income tax savings Section 24 means that most of our high-rate taxpaying clients are paying closer to 60% property tax because they can no longer offset mortgage interest against their income. You can offset all mortgage interest costs in a limited company. More income tax savings Corporation tax is 19% compared to income tax rates of 20% basic rate, 40% high rate and 45% for additional rate. Do not forget that income tax rates are actually higher than this because of S24 Even more income tax savings Using a limited company and alphabet shares means that you can allocate tax free dividends to adult children, spouses and your own parents. There are ways that you can extract up to £20,000 tax free cash out of your company Process to transfer property into a limited company We will look at some basic examples of how landlords have saved tax when they incorporate their portfolios into an investment company. Example 1: Income tax saving when incorporating If James had the property in a limited company, the corporation tax rate on the £15,000 profit would be 19%. Corporation tax liability would be £2,850 resulting in a significant tax saving of £4,150 per year. The corporation tax rate on the £15,000 profit, if James had the property in a limited company, would be 19%. The corporation tax liability would be £2,850. This is a significant tax saving of £4,150 per year. Example 2: Inheritance Tax saving when incorporating (transfer of a property portfolio into a company) A client had over £3 million worth in his property portfolio, and it was identified that he had a terminal disease. We determined that £1.6m IHT would have to be paid to HMRC. How on earth do you plan to pay £1.6m? Thankfully, we identified a lot of simple, legal, and practical plans to reduce the inheritance tax liability from £1.6m to £400,000. It is still a lot of money to pay HMRC, but it was worth hosting the call to save £1.2m. The use of freezer shares and growth shares mitigates future growth in the hands of parents and immediately passes on to children, thus avoiding the IHT trap. Example 3: Save Capital Gains Tax (CGT) when incorporating (a tax planning requirement) A property’s deemed purchase price is based on the market value when incorporated into a limited company at the incorporation date. You could have purchased a property in 1970 for £20,000 and could be now with £200,000. Selling this property whilst it is in your name would be as follows – £200,000 market value now – £20,000 purchase price – £180,000 gain made – £6,000 CGT annual exemption – £174,000 taxable gain – £48,270 CGT liability payable within 60 days of disposal The £180,000 would be subject to 18% for the basic rate and 28% for high-rate taxpayers. There are exceptions of £6,000 per person. However, there would be no corporation tax if the landlord incorporated their portfolio and then sold the property. This is because the sales price of £200,000 would be met with the incorporated property price of £200,000. No gain is made. Can you now see that landlords like you save income tax, CGT and IHT when they incorporate their portfolio into an investment company? The property incorporation process is not cheap. Many landlords will be put off the cost of the incorporation process. They should not be put off. Investing money to incorporate a portfolio will save taxes for them and their children in the long term. It is essential that you work with property tax specialists to ensure you understand the role of incorporation relief in your tax planning. Incorporating properties into a limited company FAQ What is incorporate properties? Landlords may wish to legally transfer their property portfolio from their own name into a limited company to save income tax and reduce their income tax liability. Can I move into my rental property to avoid Capital Gains Tax UK? You can use incorporation tax relief to avoid Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) when you transfer properties into a limited company.