Transferring properties to a limited company can offer several tax benefits. This is largely due to the fact you will pay corporation tax instead of income tax on any income earned from your properties. Other benefits include tax relief on mortgage interest, limited legal liability, and the option to claim allowable expenses. 

However, you should seek professional advice on how to transfer property to a limited company before doing so, as substantial tax charges may be triggered if done incorrectly. There are several tax considerations at play, all of which our property accountants at Williamson & Croft can guide you through step-by-step. 

For tax specialists you can trust, contact us today.

Your Options When Transferring Property to a Limited Company

Getting your head around the information on these different taxes is difficult enough. If you’re a business owner or investor, you’ll have enough on your plate as it is without having to navigate your way through the complexities of the property transfer process. 

Our team of property development and investment accountants are here to help with any and every query you may have. Contact us or call 0161 399 0121 to find out more information, or for guidance on your property transfer plans.

Incorporation relief

One of the most tax-efficient ways of transferring your property to a limited company is through incorporation relief. You may benefit from this if you own a property portfolio and a property business, rather than a collection of property investments. HMRC stipulates that in order for a property business to be considered as such, you must work at least 20 hours a week on your properties. Your portfolio should also contain enough properties to justify the time spent working on them.

Incorporation relief delays the payment of stamp duty and capital gains tax until you decide to sell. If you don’t sell your company or company shares, you never have to pay it.

If you are not eligible for incorporation relief there are other tax efficient ways of transferring your property to a limited company. Again, it is really important to seek professional advice and guidance so that you do not trigger any charges and achieve the most cost-efficient transfer process.

Sale and purchase

An alternative is to sell the property to the limited company at market value. This will trigger a Capital Gains Tax liability on any gain made since the property was originally purchased. The company will pay Stamp Duty Land Tax on the purchase price, and the property will be an asset of the company.

Gift and purchase

You can gift the property to the company, which will not trigger capital gains liability, but the company will be required to pay stamp duty on the market value of the property. The company can then issue you with shares, and the cost of the property becomes the market value at the time of the gift.

Partnership

When you want to transfer a property owned by a partnership into a limited company, you can do so by incorporating the partnership. This process involves setting up a new limited company and then transferring the property from the partnership to the company.

This can be done with incorporation relief to defer capital gains tax until you sell.

How to Transfer a Property to a Limited Company – Step-by-Step

The different ways in which you can transfer properties to a limited company we’ve covered all have slightly different practical actions you’ll need to take to get the ball rolling. Let’s cover a quick overview of the things you’ll need to do to get started.

How to transfer property via incorporation relief

  • Consult a tax specialist, accountant or solicitor who can guide you through the process and ensure all necessary steps are taken.
  • Obtain a professional valuation of the property to determine its market value.
  • Draw up a legal agreement to transfer the property from your personal ownership to the limited company. Your solicitor will draft this for you.
  • Issue shares in the limited company to yourself, equal to the agreed value of the property being transferred. The shares serve as ‘payment’ for the property.
  • Inform HMRC of the transfer, claim incorporation relief, and update all relevant property records.

How to transfer property via sale and purchase

  • As before, obtain a professional valuation of the property to establish its market value.
  • Negotiate and agree on the sale price and terms between yourself and the limited company.
  • Have a solicitor prepare a sale agreement that outlines the terms of the property transfer then execute the sale agreement, and transfer funds from the limited company to your personal account.
  • Calculate and pay any Capital Gains Tax due on the sale, based on the difference between the sale price and the original purchase price.
  • Notify HMRC of the sale, pay Stamp Duty Land Tax if applicable, and update property records to reflect the new ownership.

How to transfer property via gift and purchase

  • Follow the steps from above to obtain a property valuation and retain the services of a solicitor.
  • Legally transfer the property from your personal ownership to the limited company as a gift. A property solicitor can draft the necessary documents for you.
  • Allot shares in the limited company to yourself equal to the market value. The limited company must pay Stamp Duty based on the market value of the property at the time of the gift. 
  • Inform HMRC of the gift and update all relevant property records e.g. Land Registry.

How to transfer property via partnership

  • Establish a partnership with the other property owners if you haven’t already done so. This partnership will own the property before incorporation.
  • Consult a tax specialist, accountant, or solicitor to guide you through the incorporation process and ensure compliance with legal and tax requirements.
  • Form a new limited company with Companies House. This company will receive the property from the partnership.
  • Obtain a professional valuation of the property to determine its market value. Then, have your solicitor draft a legal agreement to transfer the property from the partnership to the limited company. 
  • Issue shares in the limited company to the partners in proportion to their ownership stakes in the partnership. The value of the shares should equal the agreed value of the property being transferred.
  • Claim incorporation relief and update records to notify HMRC and Land Registry of the transfer and update all relevant property records.

Benefits of transferring properties to a limited company

  • Income tax vs corporation tax: Corporation tax rates are often lower than your personal income tax, depending on your income. So a major benefit to transferring your property to a limited company is the money you will save on taxes.
  • Tax-efficient profit extraction: For example, you can add a family member as a non-executive director to your limited company. Any remaining funds after tax can be reinvested into other properties or paid out as dividends to you and other shareholders.
  • Allowable expenses and mortgage interest: You can deduct mortgage interest and allowable expenses from your rental income to reduce profit and, as a result, the amount of corporation tax due.
  • Limited liability: Setting up a limited company provides legal separation between you and the company, which means you are not responsible for any of its liabilities. If your company owns your property, it is responsible for its liabilities. This usually means your personal legal and financial liability is minimised if there are any legal issues or financial losses.

Disadvantages of transferring properties to a limited company

Transferring property to a limited company is a substantial scenario, some buy-to-let investors may find that the costs of transferring ownership may abolish any tax savings in the short and long term. Therefore, gaining the right advice for your individual circumstances is crucial.

  • You don’t own your property: It goes without saying, but important to note nonetheless that you will have handed over your property to your company. This means if something happens to cause financial losses, all of its assets are exposed, including your properties.
  • Possible mortgage change: Your limited company will more than likely need a commercial mortgage, which typically comes with a higher interest rate. Your current mortgage company may not agree to transfer over to a limited company, as they may argue that you can’t mortgage a property you don’t own. 
  • Capital gains tax and stamp duty: Your company could be liable to pay stamp duty based on the property’s open market value at the point of transfer. You may also have to pay up to 24% capital gains tax, which is paid on the difference between your sale price and the original purchase price. 
  • Future sales: If you decide to sell a property the money will go to your company. After corporation tax is taken from your profits, you will need to take the balance of the money from the sale out of the company. This will be as a salary, dividends or by other means. You will then pay additional tax on that too.

How much is the transfer?

When transferring a property to a limited company, you are free to transfer it for whatever price you like. However, remember that stamp duty will usually be calculated on the full market value of the property, not the purchase price.

As mentioned above, running your properties through a limited company can provide many tax benefits, which is why more and more landlords are choosing to do so. There are also many tax pitfalls and charges to be aware of.

Here at Williamson & Croft, our expert team of property development and investment accountants can advise you on the best method of transferring your property in order to avoid these pitfalls and achieve the most cost-efficient outcome. 

Email info@williamsoncroft.co.uk for more information, or you call us on 0161 399 0121 or 0151 303 3112. We have offices based in both Manchester and Liverpool.