Q) I have several clients with buy-to-let properties who have asked me about transferring their properties to a limited company. I am familiar with the capital gains tax issues, but what about the stamp duty land tax (SDLT) implications?
A) Holding a buy-to-let property via a limited company can be an attractive way of holding property. Lower rates of corporation tax and full mortgage interest deductions apply following the changes to interest relief for individual landlords.
There have been changes to stamp duty land tax and as such it has become an area that should be given more than a mere thought. Here we are looking at the SDLT implications of property transfers in England, Northern Ireland and Wales. Transfers of property in Scotland will be subject to land and buildings transaction tax, and from April 1 2018 property transfers in Wales will be subject to land transaction tax.
Where an individual is transferring a property to a connected limited company the following should be considered:
1) The consideration is deemed to have been payable at no less than market value of the property. The SDLT cannot be reduced if the transfer is for nil consideration or at less than market value. There are no rules relating to gifts.
2) The additional rates of 3 per cent will apply to all residential property acquisitions made by companies.
3) If the transfer to a company comprises a mixed use property, that is, residential and commercial, then the mixed use rates apply.
4) If two or more properties are transferred to a company, then it may be possible to make a claim for multiple dwellings relief. This relief calculates the SDLT payable by reference to the average value of the properties transferred.
5) The higher SDLT rate of 15 per cent applies where a company acquires a single dwelling interest valued over £500,000 unless for qualifying business purposes. Relief is available where the properties are held as buy-to-let investments though further SDLT may become due if there is a change of use within three years.
There are further and differing implications if a partnership is involved. Where property is transferred from a partnership any actual consideration is ignored and the consideration deemed to have been payable is a formula. In effect, the partnership rules for SDLT take precedence over the market value rule at point one above.
Ben Chaplin is managing director of Croner Taxwise
