Investing in property can be a lucrative long-term strategy, but tax efficiency is key to maximising your returns. One of the biggest decisions landlords face is whether to hold properties in their personal name or transfer them to a limited company. While incorporating a property business can offer advantages, it also comes with potential pitfalls—especially when it comes to Capital Gains Tax (CGT), Stamp Duty Land Tax (SDLT), and financing considerations.
In this piece, we’ll break down the tax implications of transferring investment properties to a company, explore the benefits of incorporation, and highlight key factors to consider before making a move.
Transferring residential properties to a company: What you need to know
If you transfer personally owned residential properties to a limited company, it isn’t a simple handover. The tax implications can be significant:
Capital Gains Tax (CGT)
The transfer is treated as a sale at market value.
You may face a capital gains tax charge on any increase in property value since purchase.
Gift relief (which allows deferral of capital gains tax) is not available.
The gain may be reduced by incorporation relief (more on this below).
Stamp Duty Land Tax (SDLT)
The company must pay SDLT based on the market value of the property, even if no money changes hands.
An additional 5% surcharge applies for residential properties owned by companies.
If six or more properties are transferred, the transaction may qualify for commercial SDLT rates, which could lower the tax burden.
Potential debt considerations
The transfer can create a Director’s Loan Account (DLA) balance, meaning the company effectively owes you the value of the properties.
This could provide an opportunity for tax-efficient cash extraction in the future.
Why consider incorporating a property business?
Despite the upfront tax costs, property business incorporation can offer long-term tax efficient, including:
- Corporation Tax on rental profits – Instead of paying Income Tax (which can be as high as 45%), rental profits in a company are taxed at Corporation Tax rates (currently 25%), potentially increasing net profits.
- No interest deduction restrictions – Companies can fully deduct mortgage interest as an expense, unlike individual landlords who are subject to restrictions.
- CGT base cost – When properties are transferred into a company, the base cost for future CGT calculations is reset to the market value at the time of incorporation, reducing future tax liability.
- SDLT exemptions for partnerships – If the properties are held within a genuine partnership, transferring them into a company may be possible without SDLT liability under special partnership rules.
Scenario: Successful property business Incorporation
Mr. and Mrs. B own an investment property portfolio worth £15 million, with an original cost of £6.5 million and outstanding debt of £9 million. They manage the properties actively, spending more than 20 hours per week on rental activities.
- They qualify as a property business and can apply for Incorporation Relief.
- The rolled-over capital gains amount to £6 million (Market Value – Debt).
- They offset the remaining £4.5 million in gains using brought-forward capital losses.
- By structuring the incorporation correctly, they remove both CGT and SDLT liabilities.
Key Takeaway: Incorporation worked for Mr. and Mrs. B because they structured their business correctly before making the transfer.
Is incorporation right for you?
Property business incorporation is not a one-size-fits-all solution. Each case is unique, and getting it wrong can be costly. Before making a decision, consider:
- Your tax position – Are you paying higher-rate Income Tax? Do you have capital losses that could offset gains?
- Your business structure – Do you actively manage your properties, or are they passive investments?
- Your long-term goals – Are you looking for tax efficiency now, or planning to sell in the near future?
- Your mortgage arrangements – Will lenders allow you to transfer existing property loans to a company?
Next Steps: Get expert advice
If you’re considering incorporating your property portfolio, it’s essential to seek professional tax advice. A poorly planned incorporation can result in unnecessary CGT, SDLT, and mortgage issues.
Contact our tax team today to discuss your unique situation and develop a tailored strategy.
Take control of your property tax planning!
Disclaimer: This is intended for informational purposes only and does not constitute financial advice. Please talk to us before making any financial decisions.