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Transfer property from personal to limited company

Need an overview of tax implications of property transfer

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I have a meeting with an accountant scheduled for next month but wanted to get a broad understanding prior to this discussion. 

I own 1 property values at 300k with a mortgage of 123k. I'm looking to purchase a new residential property with my partner for ca. 750k. This would be liable for stamp duty of 50k, 22.5k caused by additional stamp duty rate. 

I have looked into options available and either sale of buy to let or incorporation into a limited company seem like best options. If I incorporate, will the stamp duty paid be recorded as a loss on the P&L? Do I need to have additional cash to process the transfer (via a loan)? If I sold the property in 10 years time, would it be subject to capital gains or just corporation tax? Would my ownership of the company at this point be subject to CG if I extraxted The money via dividends? 

Is this a legitimate route to use or is this like the whole loan charge fiasco going on at the moment? How do I choose a good accountant to assist me? 

Replies (5)

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Hallerud at Easter
23rd Dec 2019 17:34

You need to talk to an accountant (and possibly a solicitor) without the preconceived idea it ought to be a company purchase. I might also say having done your homework as to whether it is a good idea anyway to buy a further property- also partners (whether business or other) can fall out- do really consider the possible risks with a joint purchase.

You are in the first place very unclear re your question what this property is to be used for (living in by you/rented to others?) and there are quite a few bogies re tax, legal complications if you and your partner split plus re the security position re possible lenders .

You also need a crystal ball regarding how HMG will treat residential properties within company envelopes in the future, on this the trend is not your friend and whilst you do not discuss financing a view on forward interest rates , if borrowing, dependent say upon what is agreed re say EU trade negotiations and other factors ought to be taken (though I doubt there is any conclusive answer re this but you possibly ought to stress test the financing costs to see what leeway margin you have before the numbers might get very tight)

Have a look at this for starters.

On the question of the SDLT, it is part of the cost of the property for future CGT or CT and only reduces tax re either when the asset is sold.

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Replying to DJKL:
By Dipesh747
23rd Dec 2019 19:54

Thanks for the reply, apologies I was a bit unclear in the original statement. I own a property (buy to let) now, however I want to buy a property to live in with my fiancé and need to release capital from that buy to let in order to do this. So the residential property which we buy together will not be within a company; however that buy to let which is in my name currently may be moved to within company.

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Replying to Dipesh747:
Hallerud at Easter
23rd Dec 2019 22:01

I see, sorry , I misunderstood.

Has the property you currently own always been a BTL or is there any PPR relief for CGT purposes during your ownership, in effect does it have a latent gain that would trip a CGT bill if it were now sold to a company at its current value?

You also want to get a feel as to what LTV and what interest/repayment cover from rental a replacement lender to the company would tolerate, no point tax/cost planning if the figures involved are not possible remembering that lenders will likely have different tolerances re lending to a company rather than to an individual and the release of equity to fund the house with partner will obviously impact a lender's security with a higher LTV and lower repayment servicing cover than you would currently have with the £123k borrowings.

You want to get all the history etc , costs and dates ready for when you go to see your accountant together with understand lending parameters.

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By Tax Dragon
23rd Dec 2019 17:40

Dipesh747 wrote:

I have a meeting with an accountant scheduled for next month... How do I choose a good accountant to assist me? 

Form a judgment at the meeting.

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By Montrose
27th Dec 2019 15:11

Leaving aside all the technical questions, why do you expect anyone to know what the law will be in 10 years' time?

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