Implications of transferring my buy-to-let to a Limited Company?
Matthew Collins
Viewpoint Accountants’ Steve Bird provides an overview of the loan interest relief and Capital Gains tax lettings relief.
Given the recent attack on Landlords by the government (restriction on loan interest relief and restriction on Capital Gains tax lettings relief), more and more landlords are considering transferring their property portfolios to a limited company. Whilst on the face of it this might seem like a good idea, there are considerations you might not be aware of.
At first glance, it might seem sensible to transfer your property because the company will not only obtain full tax relief on the loan interest paid, but will also benefit from a 19% tax charge instead of up to a 45% tax charge.
However, although you will be transferring the properties to your own limited company, this is still considered as a disposal for capital gains tax purposes, meaning that you could realise up to a 28% tax charge on the difference between your original purchase price and the market value of the property at the point of disposal. Additionally, as you are transferring to your company, you might not realise any proceeds to settle the tax liability.
The company could be liable to pay Stamp Duty Land Tax on the market value of the property and the company will be liable to the SDLT at the additional rate of SDLT.
These two liabilities could wipe out any tax savings you achieve by obtaining full tax relief on the loan interest.
Disadvantages of transferring property in to a limited company
You should also consider the following: –
• What is the view of the mortgage company? As the property is held in a company, they might view this as a commercial mortgage and charge a higher rate.
• If something happens to the company then the assets, including the property, are exposed.
• If the company sells the property then the proceeds will belong to the company. There will be additional tax liabilities to consider if you want to extract the proceeds from the company.
Advantage of transferring a buy-to-let to a limited company
It becomes a bit of a numbers game and you really need to crunch all the numbers to establish if it’s beneficial for you to transfer or not.
There are some circumstances where transferring to a limited company might benefit you: –
• If you’re buying a new property, then buying via a limited company might make sense.
• If you run your buy to let business via a partnership, then transferring might reduce the tax burden.
• If you want to leave the properties to your children, you could consider a company rather than a trust.
As a general rule, if you own one or two buy-to-let properties, then transferring to a limited company doesn’t make sense. However, if you have six properties, it might be worth exploring the potential benefits.
