Some of the links on this website will earn an affiliate commission – at no extra cost to you. Without these affiliate commissions, I could not have kept this website running - I want to thank everyone that has supported me! Full details can be found at the Terms & Conditions Page
Evolution Blogger is a journalistic website. We are not accountants or Independent Financial Advisors. You must consult with qualified professionals before making any investment decisions.
Owning buy to let property is a dream for many. But as you know, it’s so easy to get hammered with taxes. Income tax goes up to 45%. Section 24 means that you can make a loss and still pay income tax!
If you’re reading this article, you’ll know that you can drastically reduce taxes by using a limited company. But what if you already own properties in your own name? How do you transfer them to a limited company? This can be a problem. You need to pay Capital Gains Tax (CGT) and Stamp Duty to transfer the properties. This can be outrageously expensive! However, there is a solution.
In this article, I explain the ‘partnership incorporation’ solution. It’s a Section 24 tax loophole. It enables you to transfer your buy to let properties to a company, without paying CGT or Stamp Duty. I also cover the process and explain how you can do it yourself.
If you haven’t come across partnership incorporation, I suggest you read on! If you structure your affairs right, you can save hundreds of thousands, when you transfer the properties. I also provide links to the HMRC website, so you can read further.
Please note that I’m not an accountant or a tax advisor. I’m just providing information about my personal experiences. Nothing in this article (or website) constitutes tax advice. Buy to let taxes and limited company property in the UK are complex areas. You must always get tax advice from a qualified professional.
Most UK buy to let investors use a limited company. Essentially, they own a company and the company owns the properties. Buy to let tax taxes are much lower, inside a company. In this section, I provide more detail about this.
Corporation tax is lower than income tax
If your limited company makes a profit, then you pay corporation tax – which is 19% of profits. However, if you own buy to let properties in your personal name, then you pay income tax on profits. Buy to let investors tend to be high earners, so you probably pay income tax at 40% or 45%. Much higher than 19%!
Limited companies are exempt from Section 24 tax rise
Section 24 is a tax rise that applies to buy to let properties. But limited companies are exempt. So what are the buy to let mortgage tax implications? Essentially, you can’t net mortgage interest costs against rental income, for tax purposes. So you pay income tax on revenue rather than profits. The calculation is complex, but it means that your buy to let property can make a loss, but you still pay income tax! I explain section 24 in this article – it includes a worked example. This article is also important. It provides a summary of the main buy to let taxes in the UK.
In my view, section 24 is a disgrace. It’s just a way of punishing landlords with punitive taxation.
The good news is that Section 24 doesn’t apply to properties in a company. This is a loophole that investors can use.
Limited companies can pay less inheritance tax
Inheritance tax is paid on assets you give to your loved ones when you die. Above the threshold, 40% of everything you own is given to the UK Government! When you have buy to let properties in your own name, it’s very difficult to avoid inheritance tax (IHT).
With limited companies, there are strategies to reduce IHT. Those strategies are beyond the scope of this article, but there are further resources you can investigate
- This page on the UK Government website describes Business relief for IHT. In certain circumstances, you can pay zero IHT for businesses
- At the bottom of this article, I provide the details of my tax advisor. They have a ‘freezer shares’ solution to avoid IHT
From the above section, it’s clear that taxes are lower inside a limited company. But what if you already own a property in your own name? This is very common. Maybe you used to live in the property.
Why don’t you just transfer the property to the company? You can do this, but the British Government will whack you with massive taxes (as always!).
You need to pay capital gains tax (CGT) when you transfer a property to your company. Assume you bought the property for £200,000, and the value has increased to £500,000. If you’re a higher rate tax payer, you pay 28% of CGT on the £300,000 capital gain. This comes to an eye watering £80,000, once you factor in the tax free allowance. No section 24 tax loophole is worth paying £80,000 for!
Stamp Duty will also need to be paid by your company. For a £500,000 property, stamp duty will come to £30,000.
For your one buy to let property, you’d pay a whopping £110,000 in tax. If you have more properties, then this number would be much higher. At this point, 95% of property investors give up. The fact that you’re reading this article, means you’re part of the other 5%.
You can avoid paying stamp duty and CGT, when you transfer your properties to a company. You need to structure your affairs properly. In the next section, I cover a Section 24 tax loophole. I describe partnership incorporation for transfer of properties to a company – without tax.
In the last section, I explained how CGT and stamp duty make it expensive to transfer property to a company. But there is a solution. If there is more than one owner of your property (e.g. husband and wife), then you don’t pay any tax to transfer property to a company. This is the Section 24 tax loophole that you’ve been searching for.
This strategy applies to properties, where there is more than one owner. If you’re single, don’t stop reading! There’s a workaround that can be applied. More on that later.
Avoid Capital Gains Tax
If there is more than one owner of a property, then you don’t pay capital gains tax (CGT) to transfer it to a company. This is because of section 162 incorporation relief – view the UK Government website for details.
In the previous section, you bought a property for £200,000 and now it is worth £500,000. You normally need to pay CGT on the £300,000 gain. With Section 162, you can choose to delay paying CGT. So instead of paying CGT when you transfer the property to the company, you can pay CGT when you sell the company. If you don’t sell the company, then no CGT is payable.
Avoid stamp duty
You can avoid Stamp Duty when you transfer your property to a limited company. This is because of SDLT incorporation relief.
Why does this solution work?
So why don’t you need to pay CGT or stamp duty? Why does this solution work? When more than one person owns a property, you have a partnership. A partnership is a business. So when you transfer the property from the partnership to a limited company, you simply change the structure of the business. This is why you benefit from the tax reliefs I mentioned above.
This is different when one person transfers a property to a limited company. In that scenario, there is no existing business. That person is selling the property to the company and triggering stamp duty and CGT.
What if you’re single?
The solution above is for properties that are owned by more than one person. But what if you own your properties by yourself? There are solutions that can be applied. I should mention that I don’t have a deep knowledge of these solutions – they’re not relevant for me. My tax advisor does offer solutions for single people. I provide their details in the next section
If you’ve read this far, you want to know how to transfer YOUR properties to a company – tax free. In this section, I explain exactly how you can do this yourself.
To use partnership incorporation, you’ll need to work with a specialist – your accountant can’t do it for you! Make sure you work with a good advisor. Partnership Incorporation is a complex area of tax, with amazing benefits. You don’t want to work with a cowboy.
I recommend Cotswold Barristers, to transfer your properties to a company. You can book an appointment with them on this page. I spent a long time searching for the right specialist, and I chose Cotswold Barristers for some important reasons.
- They have £10 million of professional indemnity insurance. This provides a lot of assurance for investors, when they work with Cotswold Barristers
- When you transfer your properties to a company, you don’t need to refinance your mortgage. They offer a ‘delayed completion’ solution
- They can set up freezer shares in your company. This is a solution to avoid inheritance tax on your properties
I explain these features in more detail below.
Professional Indemnity Insurance
Partnership Incorporation is a complex area of tax, and big money can be saved. Cotswold Barristers offer £10 million of professional indemnity insurance to their clients. This has provided a lot of comfort to clients of Cotswold Barristers.
You don’t need to refinance your mortgage
If you own a property in your own name, you may have a mortgage on it. Typically, you can’t transfer mortgages from personal name to a limited company. This can be a problem, as you may have to pay financial penalties to exit your mortgage deal. Cotswold Barristers offer a ‘delayed completion’ solution. This means you don’t need to refinance your mortgage straight away. You can wait until your fixed term ends, and then change your mortgage at that point.
Set up freezer shares to avoid Inheritance Tax
Cotswold Barristers can also set up freezer shares in your limited company. This is an advanced strategy with amazing benefits. It means you can pass your company to your kids when you die, without paying inheritance tax. If you have a company with £5million of property, you have to pay inheritance tax at 40%. That would come to a shocking £2million. This inheritance tax can be avoided by setting up freezer shares.
You might think that £5million is a large company, but it’s really not. If you die in 40 years, then your company could easily be worth £5million. The effects of inflation and buying new properties could be huge.
Set up an appointment
Cotswold Barristers offer a terrific solution for investors. They can help you to transfer property to a company – without tax. If you want to find out more, you can book an appointment on this page. They are specialists in their field and have many happy clients.
They say that the only certainties in life are death and taxes. In this article, I hope I’ve shown you that taxes aren’t certain at all!
Can you transfer your buy to let property into a company? Yes you can, but you could get clobbered with tax. Over the years, buy to let taxes have risen. In this article, I’ve explained how to save taxes by moving property to a limited company. I’ve also covered a loophole. You can avoid paying Stamp duty and Capital Gains Tax, during the transfer.
If you want to find out more about buy to let taxes in the UK, you can read the below articles.
Why do property investors buy inside a limited company? Because of tax!
Tax 101: How to withdraw money from a private limited company
Most popular income tax investments in the UK. A Summary
Tax 101: Buy to let taxes. What do you have to pay?
Tax Strategies: What is Section 24? How to avoid it
- Principal private residence relief. What are the benefits? Do I qualify?
Please note that I’m not a qualified accountant. I write this article based on my own experiences. Limited company property, buy to let taxes for limited companies and buy to let taxes in the UK are complex areas. You are fully responsible for your own tax affairs and the decisions you make. You should always take professional advice before doing anything. If you do want to take advice, then Cotswold Barristers are hugely experienced. Book a consultation here. They can provide advice and carry out the transfer for you.