Capital Gains Tax on transfer of Buy-to-Let to a Company

[dylanmarlais]

Some private landlords are considering transferring their properties to a company. This will give rise to Capital Gains Tax and SDLT. I wonder if my understanding of the application of CGT is correct.

This year, I have an annual exemption of £12,300, which is being cut to £6,000 for the tax year 2023/24.

The rate of tax is at 18% or 28% depending on other taxable income.

So, my question is, can I transfer to the Company 50% of the property now, and 50% of the property in the new tax year?

If so, I will be able to use my annual exemption for both tax years. And, due to the application of the 18/28% rates, there appears to be a significant saving in CGT.

 

[Gyumri]

Some private landlords are considering transferring their properties to a company. This will give rise to Capital Gains Tax and SDLT.

It might be better to simply transfer the legal title but not the beneficial interest by using a trust deed. There would then be no CGT or SDLT to worry about and the Ltd would become the new landlord. But check this out with a solicitor. I think you'll find that will be the solution.

 

[UK Contractor Accountant]

It might be better to simply transfer the legal title but not the beneficial interest by using a trust deed. There would then be no CGT or SDLT to worry about and the Ltd would become the new landlord. But check this out with a solicitor. I think you'll find that will be the solution.

think it might be the other way round - transfer beneficial ownership to Ltd not the legal tittle?

 

[Gyumri]

If you transfer the beneficial ownership to the company then you personally will have to pay capital gains tax and I think the company will have to pay stamp duty which is what you're trying to avoid.

You want the limited company to act as the landlord which it can do as it will be the legal owner of the property. It doesn't need to also be the beneficial owner.

 

[Bobbo]

If you transfer the beneficial ownership to the company then you personally will have to pay capital gains tax and I think the company will have to pay stamp duty which is what you're trying to avoid.

You want the limited company to act as the landlord which it can do as it will be the legal owner of the property. It doesn't need to also be the beneficial owner.

If it's not the beneficial owner, how can it act as the landlord (i.e. recording rent received as income)???

 

[Gyumri]

Because it's the legal owner and has all the powers of an owner. Of course, if it gives all of its rent over to the beneficiary, then it won't have made any profit. If it gives you some of the rent to you as the beneficiary, then you would have to pay tax on it as personal income.

 

[NicoJ]

Some private landlords are considering transferring their properties to a company. This will give rise to Capital Gains Tax and SDLT. I wonder if my understanding of the application of CGT is correct.

This year, I have an annual exemption of £12,300, which is being cut to £6,000 for the tax year 2023/24.

The rate of tax is at 18% or 28% depending on other taxable income.

So, my question is, can I transfer to the Company 50% of the property now, and 50% of the property in the new tax year?

If so, I will be able to use my annual exemption for both tax years. And, due to the application of the 18/28% rates, there appears to be a significant saving in CGT.

AFAIK The answer to the question asked is no. You can't sell half of your house, its all or nothing.

 

[Bobbo]

@dylanmarlais

In principle, you can 'transfer' (you do not specify whether you mean sell or gift) any % of a property to a person or company. But you would be well advised to take appropriate tax and legal advice to ensure it's done right otherwise you may find yourself with unintended tax consequences.

 

[WaveJumper]

It's a definite trip to your accountant and tax adviser, as above, get it wrong and it will come back to bite you. And probably good advice for those thinking about BTL in the future make sure you start off on the right foot, ie a personal purchase or company purchase.

 

[AndreasC]

You can transfer part of a property to a Ltd company. I have dealt with this where ownership is split between different parties (corporate and non-corporate) but the fees involved were higher because of this added layer of complication. Also, you will end up incurring further costs (legal, etc) transferring the other part of the property later on. Is it really worth doing to save £1,680 CGT?

If you have a mortgage on the property this further complicates matters.

You ask about CGT though there are other things to consider to understand why you are doing it

 

[m4hmo]

We have this problem with properties owned on own names. My understanding is that if you manage the properties yourself, collect rent, no agent, etc etc, then it can be moved into ltd company without paying tax. Not sure if it applies to just one property. I will be calling hmrc up myself to enquire this soon, am in the middle of buying another property and this time under a ltd company.

 

[dylanmarlais]

We have this problem with properties owned on own names. My understanding is that if you manage the properties yourself, collect rent, no agent, etc etc, then it can be moved into ltd company without paying tax. Not sure if it applies to just one property. I will be calling hmrc up myself to enquire this soon, am in the middle of buying another property and this time under a ltd company.

Interesting. You are talking about 'incorporation relief'. In order to qualify for the relief the property portfolio must constitute a business in the first instance. A landlord owning a single rental property that undertakes little management activity is not sufficient to qualify as a business for the purposes of the relief. It is the quantity rather than the quality that is important. Consequently, larger portfolios that are actively managed, where the landlord carries out a significant number of activities and generally spends at least 20 hours a week running the portfolio is more likely to qualify.

As you say, worth checking if this applies to your circumstances.

 

[dylanmarlais]

You can transfer part of a property to a Ltd company. I have dealt with this where ownership is split between different parties (corporate and non-corporate) but the fees involved were higher because of this added layer of complication. Also, you will end up incurring further costs (legal, etc) transferring the other part of the property later on. Is it really worth doing to save £1,680 CGT?

If you have a mortgage on the property this further complicates matters.

You ask about CGT though there are other things to consider to understand why you are d5.oing it

There are big savings in the proportion that would be subject to tax at 28% as opposed to 18%

 

[dylanmarlais]

It's a definite trip to your accountant and tax adviser, as above, get it wrong and it will come back to bite you. And probably good advice for those thinking about BTL in the future make sure you start off on the right foot, ie a personal purchase or company purchase.

Yes. Though before the government set its face against private landlords, buying as an individual had certain advantages.

 

[AndreasC]

There are big savings in the proportion that would be subject to tax at 28% as opposed to 18%

Yes but you will have to pay Capital Gains Tax and other fees. Also, if you have a mortgage the interest rate you pay will be higher. The Corporation Tax rates are also increasing in April 2023

We have this problem with properties owned on own names. My understanding is that if you manage the properties yourself, collect rent, no agent, etc etc, then it can be moved into ltd company without paying tax. Not sure if it applies to just one property. I will be calling hmrc up myself to enquire this soon, am in the middle of buying another property and this time under a ltd company.

There is also SDLT relief if you are a partnership and incorporate (go Ltd). Again, there are criteria for this

 

[dylanmarlais]

Yes but you will have to pay Capital Gains Tax and other fees. Also, if you have a mortgage the interest rate you pay will be higher. The Corporation Tax rates are also increasing in April 2023

There is also SDLT relief if you are a partnership and incorporate (go Ltd). Again, there are criteria for this

Yes indeed. The part-transfers is to minimise the CGT. The house is not mortgaged at the moment. The ides is to get it inside a company and for the company to take out a mortgage on it (limited and more expensive). The company will then be able to offset the full costs of the mortgage repayments against the rental income. And on an on-sale, we will be transferring shares at 0.5% Stamp Duty as opposed to SDLT for any purchaser. But the reason for thinking of putting the house into a company is primarily to grow a future portfolio within the company.

 

[AndreasC]

Yes indeed. The part-transfers is to minimise the CGT. The house is not mortgaged at the moment. The ides is to get it inside a company and for the company to take out a mortgage on it (limited and more expensive). The company will then be able to offset the full costs of the mortgage repayments against the rental income. And on an on-sale, we will be transferring shares at 0.5% Stamp Duty as opposed to SDLT for any purchaser. But the reason for thinking of putting the house into a company is primarily to grow a future portfolio within the company.

You know the numbers so if you think it is worth it go for it. Companies are good to pay tax at lower levels and reinvest profits. The gvt may attack private landlords again but haven't touched companies so it should be safer in the long term

 

[m4hmo]

Interesting. You are talking about 'incorporation relief'. In order to qualify for the relief the property portfolio must constitute a business in the first instance. A landlord owning a single rental property that undertakes little management activity is not sufficient to qualify as a business for the purposes of the relief. It is the quantity rather than the quality that is important. Consequently, larger portfolios that are actively managed, where the landlord carries out a significant number of activities and generally spends at least 20 hours a week running the portfolio is more likely to qualify.

As you say, worth checking if this applies to your circumstances.

Correct, 1 property worth 1 million won't count, but several property worth 1 million counts for eg. Yes we are hands on in everyway you can imagine. Planning, design, build, maintain, manage. Will be calling them soon as its not a matter of urgency right now.

To the op of the thread, you are looking to transfer one house only - unfortunately i don't think you will be able to do this tax free. Just call up HMRC and ask - they're actually quite helpful on the phone when you do get through.

 

[Gyumri]

So, my question is, can I transfer to the Company 50% of the property now, and 50% of the property in the new tax year?

Yes you can but for your purposes and to avoid any tax liability the transfer of the legal title would not involve the transfer of the beneficial interest or any consideration but the company would declare in a deed that it is holding the property on trust for you as the sole beneficiary to manage it and collect in rents and to pay outgoings etc. No tenancies can be created without your written permission etc.

Some or all of the rental income can be paid to you and tax paid accordingly.

The trust deed will permit the company as the trustee to borrow money, mortgage the property etc but in that case the company would need to inform a lender of your beneficial interest.

Take some advice on this and if suitable then that could be the way forward to avoid CGT and SDLT.