Should you reconsider incorporating your property portfolio following the budget?

March 8, 2024

With the recent changes to capital gain tax [CGT] on the disposal of residential property, is it time to think again about transferring your property to a company?

The answer, as always, is it depends.

However, it will become more favourable, benefiting previously marginal cases.

Let’s recap why you would think about doing so in the first place.

The issue is that over the last few years, the tax relief available for private landlords has been reduced to 20% of the interest paid, even if the landlord was paying tax at 40% or 45%.

For many landlords, the cash flow from letting property was poor after paying the mortgage and other costs and the higher tax level. They still enjoyed the capital growth and reduction in borrowing but very little net income.

The rules for Limited Companies are different. The mortgage interest paid is fully deductible against profits, and companies pay a lower tax percentage.

There are costs to withdrawing earnings from a company, but if you plan to continue reinvesting in property, a company leaves more of the earnings available for reinvestment.

At first glance, transferring your property to a company is a good idea, especially if you have a mortgage.

However, there are a few costs that need to be considered.

  1. Any capital gain on the property will become payable when it is transferred to the Company. This tax would be payable at some point but is crystalised.
  2. There is likely to be stamp duty payable on the transfer.
  3. There will be legal fees to action the sale to the Company.

So, it is necessary to compare these costs to make the changes with the future savings and make a decision based on that.

So what has changed?

The CGT tax rate payable for higher-rate taxpayers has been reduced by 4%.

We recommend getting the calculators out again to see if it now makes sense to make the transfer.

Fix up a free initial meeting with us to see if you could save.

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