Transferring Buy-To-Let Property to A Limited Company: Pros and Cons

After the introduction of section 24 of the finance act from tax year 2017/18, many residential landlords can no longer deduct mortgage interest and other finance costs from their rental income before calculating their tax liability. Landlords are only able to claim relief for finance costs at basic tax rate of 20%. This has resulted to a huge shift in buying properties through limited companies. Many landlords are now considering whether they should transfer existing property portfolio to a limited company.

Transferring buy-to-let property to a limited company is an important decision to take. It depends upon the size of the portfolio, financial situation and future plan of the landlord. It is an expensive process as costs like CGT, SDLT, conveyancing costs, refinancing costs, legal costs will incur. Incorporation relief may be available. The decision should be taken with care as any wrong decision may incur huge tax cost. Get in touch with us for professional advice.

Pros:

• Restrictions on mortgage interest relief do not apply to a limited company.
• Corporation tax rates are lower than income tax rates
• Separate legal status
• Opportunities for tax planning- expenses and dividend
• Stamp duty: Landlords could consider the option of selling the company instead of property. Stamp duty payable on shares at 0.5% making it more attractive for the purchase
• Inheritance tax planning: Succession planning is a lot easier with limited companies

Cons:

• Capital Gains Tax and SDLT may be payable
• Few lenders will provide mortgages for limited company buy-to-let and mortgage rates are high
• Taking your dividend profits will subject to tax
• Annual Tax on Enveloped Dwellings (ATED) return if the value of the property is above £500,000.
• Compliance costs like accountancy fees to manage a company statutory obligation.

In case you having any query of want expert advice, please contact us on 020 8309 8553 or info@efjconsulting.com