Stamp duty when buying residential properties in a limited company


Simon Misiewicz

19th January 2016

By Simon Misiewicz

Are you looking to buy residential properties in a limited company?

Are you painfully unaware of how much SDLT you will have to pay?

Please note for the purposes of this article I have ignored the budget announcement about the 3% additional SDLT.

The problem – Stamp Duty Land Tax (SDLT) will have a major impact on your finances

Some time ago I wrote an article about SDLT and how much you have to pay as an individual. Given the 2015 budget announcement, which means higher rate taxpayers are set to pay a lot more tax because of the interest relief cap, which I explained in a previous article, many investors are looking to move their properties into a limited company.

There are a number of tax issues to consider when selling properties into a limited company. These are:

Capital Gains Tax, which I have covered in a previous article; and
– SDLT, which we will cover in this article

The fact that you are going to be buying properties in a limited company should be simple enough but sadly it isn’t when it comes to tax/SDLT.

There are different levels of SDLT when buying in a limited company than when buying as an individual and this could mean you pay more tax than you’d expect.

1 — Linked Transactions (Multiple properties sold at the same time)

If a limited company is going to be purchasing more than one property from you as an individual, or from any other individual for that matter, then the SDLT is going be be more than if you purchased one property.

For example, where you have three properties worth £100,000 each, the value for SDLT purposes is £300,000. As such you will pay £3% for the amount over £125,000.

– £300,000 total price paid
– £125,000 exempt amount
– £175,000 subject to 3% SDLT
– £5,250 SDLT, which is clearly more than what some people might expect to pay

2 — Properties purchased with a value of more than £500,000

If you are buying residential properties with a value of more than £500,000 in a limited company then you will pay 15%, rather than 4% if you purchased it in your own name, as illustrated here.

Thankfully the 15% rule does not apply to properties that are rented out.

Additionally, if the residential property is worth more than £1,000,000 and is purchased in a limited company then you will also pay “Annual Tax on Enveloped Dwellings” (ATED) each year, which is:

– £7,000 for residential properties valued between £1m and £2m
– £23,350 for residential properties valued between £2m and £5m
– £54,450 for residential properties valued between £5m and £10m
– £109,050 for residential properties valued between £10m and £20m
– £218,200 for residential properties valued over £20m

From 1 April 2016 there will be a further band for properties valued between £500,000 and £1 million. This will have an annual charge of £3,500.

ATED relief – rented properties

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.

SDLT relief: averaging

This is a relief whereby you can take the total value of the property portfolio, if it is less than six residential properties, and buy them as an individual or into a limited company. So, if you buy three properties at £100,000 then the average of each house would of course be £100,000. Therefore no SDLT will apply using the rates shown in my previous article.

There is one caveat. There is a minimum fee of 1% SDLT to be applied when using averaging on the entire amount.

Example: The freehold of a new block of 20 flats is purchased for £2.5 million. The transaction is a relevant transaction for the purposes of the relief as it involves the acquisition of more than one dwelling. The chargeable consideration divided by the number of dwellings is £125,000. This is below the normal 0% SDLT threshold but the minimum rate of tax under the relief is 1%.

Averaging relief will not be allowed if: 

– The properties are not dwellings, as in properties that are lived in by people
– The properties are commercial properties
– You transfer a freehold reversion or head lease where a dwelling has a long lease of 21 years or more.

Next steps — how to minimise your SDLT liability

If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar:

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