Transferring Your Property to a Limited Company

Reviewed By Certified Accountant
March 23, 2021

Transferring your property to a limited company can help you to reduce your annual tax bill as the corporation tax is only 19% and there is no national insurance payment. However, this may not be the case for most of the landlords because the tax rate is increasing to 25% in first rise since 1970s.

The following article will highlight the potential costs and the benefits of transferring your property to a limited company.

Can You Transfer a Property to a Limited Company?

Yes, you can transfer a property to a limited company. Many landlords and property investors choose this option to manage tax more effectively. However, the process involves costs like Stamp Duty Land Tax (SDLT) and, potentially, Capital Gains Tax (CGT).

The company will become the legal owner of the property, and if there is a mortgage, you’ll need approval from your lender. Once the transfer is complete, the company can benefit from tax advantages, such as paying corporation tax on profits and deducting mortgage interest fully.

Before proceeding, it’s important to weigh the costs against the benefits and get advice from a qualified limited company accountant or tax advisor.

Rental income is becoming less profitable for most landlords due to the removal of mortgage interest claims since April 2021. It is causing a major disruption for landlords as the tax bill for landlords has increased significantly. This should not pose a problem if you are a basic taxpayer as these changes will not impact you significantly. However, there is a tax disadvantage for higher taxpayers which is reducing a significant net profit on their property business. According to a senior professional at Tax Care Accountants, a higher taxpayer will be paying almost 30% more tax on their rental income compared to the basic rate of 20%. Forming a limited company and transferring the ownership to a limited company is an ideal tax-saving option for landlords.

How to Put Property into a Limited Company?

In order to put your home or property ownership to a limited company you may consider the following options:

A limited company is a separate entity and the tax rate is lower than the personal tax rate. You would need to consider the following expenses:

Option 1 – Transfer ownership to a limited company

1. Stamp Duty:

Normally you are required to pay the stamp duty Tax. However, as you already formed a partnership, you probably do not need to pay the SD tax. It depends on meeting the following HMRC criteria:

Normally you are required to submit your partnership tax return for minimum of 2 years.
You would need to meet the definition of partnership ‘business’. Normally you need to spend more than 20 hours per week in dealing with your property business.
Whether if the partnership formation is formal ( You would need a formal contract).
Whether you are using the same name and right SIC code.

2. Capital Gain Tax:

You are also required to pay CGT when transferring the property. However, you can claim incorporation relief if you meet the criteria of partnership ‘business’.

3. Legal Fee:

There will be a legal fee involved when you transfer the ownership. You are also required to apply for mortgage which almost 1% higher than normal rate.

4. Early redemption fee:

If your property is on mortgage then your bank may charge you an early redemption fee.

Transferring a property ownership to a limited company is a highly technical area. HMRC has increased the number of investigations into this since 2015. We recommend purchasing HMRC investigation insurance if you choose option 1.

Option 2 - Set up a property management company

Alternatively, option 2 is an advanced and smart option. You will set up a property management company and lease out your property to the property management company. Your property management company will charge a management fee before transferring the rent to you. It will result in reducing your rental income and higher tax rate at 40%.

If you choose option 2 you would need to change the contract with your tenant and form a new contract between you and the limited company.

Transferring your property to a limited company is subject to complicated tax planning and advanced accounting implementation. If you are not sure what you are doing then please contact a professional as HMRC tax investigation on transferring property to a limited company has drastically increased since 2018. Please bear in mind the corporation tax rate has increased to 25% from April 2023. Once you have transferred the ownership it will be difficult to change to your personal name as you will need to pay stamp duty and capital gain tax again.

This article is drafted by a property tax expert from Tax Care Accountants. The above article is not tax advice and Tax Care Accountants will not take any responsibility as the article is designed for blogging purpose. If you are looking for landlord guide to rental income and what expenses you can claim we have highlighted a separate blog for this article.

You can contact Tax Care Accountants for a free initial consultation.

Thinking about transferring your property to a limited company? Get expert advice to make the right decision. Contact us today!

Is It Worth Transferring Property to a Limited Company?

Deciding whether to transfer property to a limited company depends on your financial goals, tax position, and long-term property strategy. While many landlords have moved their properties into limited companies to benefit from lower corporation tax rates, the recent tax changes require a careful reassessment of this approach.

Potential Benefits of Transferring Property to a Limited Company

Tax Savings – You’ll pay corporation tax on rental income instead of income tax, which can be lower, especially for higher-rate taxpayers.
Full Mortgage Interest Deduction – As a company, you can deduct 100% of mortgage interest payments from your rental income, meaning you only pay corporation tax on profits.
Limited Liability – If the company is sued, your personal assets are protected.
Flexibility in Drawing Income – You can choose how to extract profits, such as through director’s loans, dividends, or pension contributions.
Tax-Efficient Growth – Profits retained within the company can be reinvested in new properties without incurring immediate personal income tax.
Inheritance Tax Planning – Holding property in a company can provide opportunities to reduce future potential inheritance tax liabilities.

Potential Costs and Considerations

Stamp Duty Land Tax (SDLT) – The company will likely pay SDLT when purchasing the property, which can be a significant expense.
Capital Gains Tax (CGT) – You may be liable for CGT on the sale of the property to your company, although incorporation relief can help defer this tax.
Higher Mortgage Rates – Mortgages for limited companies generally have higher interest rates than personal buy-to-let mortgages.
Increased Costs – You may need to pay legal fees and accounting fees to set up and maintain the company.
Complexity – Managing a company adds complexity to your finances and requires more record-keeping.
Reduced Flexibility – Selling a property held in a limited company can be more complex, and withdrawing profits may result in additional tax liabilities through dividends or salary payments.
Tax Changes – Tax laws can change, so it’s important to stay informed about potential future changes.
Early Repayment Fees – If the property has a mortgage, there could be early repayment fees to be paid.

Should You Transfer Your Property?

If you are a higher-rate taxpayer with a long-term investment strategy, moving properties to a limited company may offer tax advantages. However, if you plan to sell properties soon or have a small portfolio, the costs may outweigh the benefits. Consulting with a property tax expert is essential to ensure the right decision for your financial circumstances.

(This article provides general information only and is not personalized tax advice. Consult a qualified tax professional before making business decisions regarding capital allowances.)