Transfer of Properties to a Limited Company
Morris Wheeler Churchill specialise in advising landlords and property owners on the tax consequences of transferring your properties into a limited company.
Our specialist tax advisers can provide you with all the information you need to make the right decision about transferring your property portfolio into a limited company.
You will need to consider the following:
Finance cost restrictions on deductions
If you are a higher rate taxpayer and have large mortgages on your rental properties and are a higher rate tax payer, then you will be affected by section 24 rules. These restrict the amount of tax relief you can get at the higher rate for mortgage interest so that your effective tax rate on rental income will be much higher than 40%. The section 24 restriction only applies to individuals and not to limited companies. By transferring your properties into a limited company, you can get full tax relief on the mortgage interest.
A limited company is a separate legal entity, so if you transfer your properties into a limited company, this would be a disposal for capital gains tax purposes and could trigger a tax charge depending on your circumstances. The applicable capital gains tax rate could be as high as 28%. There are exemptions that apply where the transfer is of a property business rather than just properties themselves but you need to be working at least 20 hours a week on your property business in order to qualify. This area is very complex and great care is required to avoid a challenge from HMRC.
Stamp Duty Land Tax is payable on the transfer of properties into a limited company based on the rates that apply on the full market value. There would also be a 3% surcharge that would apply. However, as above, there are exemptions that can apply where the transfer is of a property business but care needs to be taken to ensure you qualify.
Simply transferring properties to a limited company will not affect your inheritance tax position. The value of your property portfolio has been replaced by the value of the company shares instead. However, it is possible to undertake inheritance tax planning to reduce your future tax bill at this point by transferring shares to your children.
If you are considering incorporation or transferring your property portfolio and looking for sound tax advice to avoid problems from HMRC, contact Morris Wheeler Churchill on 01279 464400 and book a consultation with a specialist tax adviser.