26 Oct 2020 10:46 AM

One of the most common questions I am being asked is “Should I be moving my property portfolio into a limited company?” The answer can be quite tricky as there are a number of tax charges to negotiate our way around.

The first part of the answer is to look at your personal income tax profile.

If you have a good income and are paying higher rates of income tax whilst there are mortgages on your buy to let properties, then now is definitely a good time to look at this question. The tax relief on the mortgage interest has reduced to basic rate tax relief only, so you could be in the awkward position of paying income tax on deemed rental profits which are not in the bank account.

Within the limited company structure the full amount of the mortgage interest cost is deducted before calculating the Corporation Tax on the rental profit. Another advantage is that Corporation Tax rates are currently 19% which is considerably less than higher rates of income tax. Whilst we are all expecting tax rates to rise next year it is likely there will still be a significant difference in favour of the limited company.

So now you feel a move will give you benefits, what are the potential pitfalls?

Capital gains tax (CGT) will be payable based on the current market value of the property put into the limited company. It may be that current values are not very different from your original cost in which case this may not be a concern.

Stamp duty land tax (SDLT) would also be chargeable on the transfer. The good news here is that the chancellor reduced the rates of SDLT in the current period up to March 2021. So for many property transfers the rate of SDLT will be only 3%. That may be a cost worth bearing.

Now, if CGT and SDLT look like taking a sizeable chunk from the value of your portfolio the solution that may help is to incorporate your whole property business. There are number of hurdles to overcome to be able to achieve that with all tax reliefs intact and so not pay CGT or SDLT.

So now is the time to talk to our specialist advisors at Alliotts and discuss whether you need more detailed professional tax advice.

Please contact us for further information.