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Moving a Property into a Limited Company – Is it Worth It?

If you’re a buy-to-let landlord, you’re probably well aware of the bombardment of legislative changes that the market has faced over the past few years, with compliments to the UK government.

Since April 2020, mortgage interest now only attracts tax relief via a credit of 20% and relief at higher rates, surprisingly, is no longer available.  This has made it increasingly difficult to maintain a steady profit especially for property investors.

Some landlords have seen their profits disappear completely, and are being forced to sell up, further compounding the property supply shortage for tenants.

This isn’t counting prospective investors in which the majority have shied away.

So, what does this mean for you as a buy to let investor? Should you be looking to incorporate your property portfolio? Is it worth it?

Hopefully this blog will answer some of your questions

Here’s a list of the contents below so you can jump to the bits that you want to read.

Incorporating Property as a Landlord

Why does this concern me?

If your property is currently held personally in your own name, or jointly with (for example) a spouse or a friend… Then you’re liable to pay tax on profits earnt from your investment at a higher rate of up to 45%.

Also, due to the introduction of section 24, you can no longer offset your mortgage interest payments against your profits (regardless of whether jointly owned or not). 

For many landlords who are in full time employment, this could even push them into a higher tax bracket on their overall earnings.

Why should I incorporate my property portfolio

Although, Landlords who instead hold properties through a limited company currently pay Corporation Tax on their profits, which stands at a rate of 19%.

Plus, you only pay income tax, when you take the profits out.

So, you will still have to pay tax when you withdraw income from the company, (after paying the corporation tax), but profits can be taken as dividends and split across different owners, like husband and wife, to substantially reduce the overall tax liability.

Or even taken in future years, like when you no longer have a full-time job.

Property Tax Planning with Property118

Also, as a director of a Ltd company and if you make enough profit, you can pay the full £40,000 per year into your pension fund from the company.

This could be a huge benefit to a spouse who is also a Director of the business but may only work part time and is not able to make any meaningful pension contributions. 

So instead of taking profits as income, you could take it as a pension contribution which would also further reduce your Corporation Tax.

See the difference? Choosing to incorporate your properties can reveal substantial savings on tax efficiency for higher rate tax-paying Landlords.

To incorporate, or not to incorporate.

There’s no definitive answer on whether you should or shouldn’t move your properties into a limited company, and every case is different.

Personally, we suggest you weigh up the potential savings against the costs of moving each property into a limited company. 

If the costs to do so outweighs the savings, then you’re likely to see no real benefit.

Like we said, this isn’t written in stone for every scenario.

Therefore, we always encourage you to do your own research.

The even easier alternative is to approach a professional who’s going to know the best route for you to take.

What's the benefits?

Not only are you looking at the tax relief, but a lot of Landlords incorporate their property portfolios for advantages like limited liability.

Also, it’s worth noting that once Landlords incorporate, it resets their base costs for Capital Gains Tax!

Finally, it’s now easier than ever before to obtain finance through a business, so moving your assets into a limited company can be a great option for those looking to grow their portfolios.

When's the best time to transfer property into a limited company?

Now.

There’s no better time than right now to incorporate your investments. You’ll need to keep in mind, however, that there’s a right and a wrong way to do it.

Seeking professional advice to make sure it’s done correctly will help you in the long run.

There are plenty of tax traps that you could fall into if you’re not careful, and failure to complete the correct paperwork could cost you.

We highly recommend partner brands like Property118, who are specialists on this exact topic.

Laying the foundation of growth starts with a good, structured business plan. Setting up with the right plan in mind enables business continuity which is the most important aspect of incorporation.

So, start as you mean to go on is our best advice!

What's the catch?

Before you bolt out the door and try to instantly incorporate your property portfolio, there’s a few key things you’ll need to be made aware of:

Moving My Properties into a Limited Company

When you transfer properties to a limited company, you’ll no longer personally own the property. Instead, your ownership will be represented as shares within the business.

You’ll also need to effectively ‘sell’ your properties to the limited company.

This is why you need to take professional advice and don’t become liable for the following;

Capital Gains Tax

If done correctly, moving your properties into a Ltd company allows you to reset the base cost to today’s value, using ‘incorporation relief’. 

This alone could save you a small fortune.

Even if you’re thinking of selling your properties, you should crunch the numbers and see if it’s worth moving your properties into a Ltd company before you sell.

The percentage/amount of CGT you’re liable to pay as an individual will entirely depend on what tax category/band you fall into, generally varying between 18% or 28%.

However, Limited companies usually pay Corporation Tax on disposal of assets, so this again could be a potential tax saving.

Stamp Duty

Stamp Duty tax is an additional form of property tax.

The contribution of Stamp Duty was, historically, formed in 1694 to gather funding for the Nine-Year War.

To avoid paying Stamp Duty again when you move your properties into the Ltd company, you must ensure that you take professional advice and the process is followed correctly.

You can learn more about Stamp Duty by clicking here.

Legal Fees

As well as the other costs involved, you’ll need to factor in paying the legal fees and you may want to set up a Directors Loan which could also be tax advantageous.

Legal Help with Incorporating Properties

How to move your Properties into a Limited Company

We don’t recommend doing this alone. 

Whilst there are clear benefits to doing so, an oversight on your part could be extremely detrimental. 

Therefore, we suggest you bring the experts in.

Expert Tax Planning with Property118

If you want to move your properties into a limited company but you’re not sure how, let the experts help you! 

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