Thinking about Moving your Property over to an LTD?
One of the critical reasons landlords have started thinking about moving their property portfolio over to a limited company structure is due to the announcement by the government, of restricting the tax relief on financing costs (mortgage interest relief included) from 6 April 2017 onwards.
The other main reason for this transfer is the tax cap on the profits a company makes. As a company, you only pay a set percentage of tax on your earnings regardless of the profit value in a company, unless the money is taken out for personal use. As a sole-trader your tax percentage depends on your income bracket, a high rate taxpayer pays up to 40% in taxes on their income.
It would be best if you weighed all the pro’s and con’s before you decide to move your properties over to a limited company structure.
Think about the capital gains tax implications; a transfer of property is chargeable to CGT at the deemed Market Value of the property even if the property is gifted or transferred at a lower value. You might want to try and avail S162 Incorporation Relief which is available if you move your property to a limited company for shares or shares and cash. The property held by a sole-trader or partnership needs to show that it was part of a business before you can get incorporation relief. Incorporation relief delays you paying any capital gains tax until the shares in the company are disposed of or sold. There are numerous other conditions which you as a landlord need to meet before S162 can be applied.
Stamp Duty Land Tax is a tax which you will have to pay if you are buying a property over specific values. When transferring your property over to a limited company, SDLT will be payable if the value considered for SDLT is above a certain amount. The calculation of the charge is by reference to the market value of the property and not the consideration.
ATED can also become applicable if you hold a residential property through a property which is higher than a specific value. You will need to check if you need to submit an ATED return.
Transferring property from Sole or Partnership Landlord to a Limited company can become time-consuming, complicated and confusing. There can also be many tax traps which might be hard to avoid if you are not too sure about what you are doing or trying to do. Assessing your costs to benefits and likely savings over the long term should be the first step, after which a good transfer planning strategy and a plan of action will add significant value in the long run.
Clear House Accountants are specialist Property Accountants in London who have years of experience working with Landlords, Developers, Property Management Companies and Estate Agents. We have developed smart strategies, tax solutions and the best implementation methodologies to make sure our clients save money and stay on the right side of HMRC.
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