Over the last few years the tax burden for landlords has been steadily increasing, with higher rate taxpayers not being able to relief their mortgage interest at their marginal tax rate.
It would be ideal for buy to let properties to be run through a limited company and only pay 19% corporation tax, and we would recommend that for any new properties.
The problem is that if landlords move properties from personal ownership to a limited company they would normally incur capital gains tax on the transfer. For smaller portfolios this can be achieved with careful piecemeal planning of the transfers over a number of years. Although with the reduction in the CGT annual exemption this will become less attractive.
But what is you have a large portfolio that has enjoyed a high level of growth in value and the capital gains tax makes it an expensive option?
Well if the portfolio can be deemed to be a business the capital gain can be rolled into the company and effectively deferred until the ultimate sale of the properties. This is called ‘incorporation relief’
To definitely qualify as a business and then enjoy the benefits of incorporation relief a property portfolio would need to qualify the following conditions.
1. To be run as a business to make a profit
2. To have its own bank account for the business
3. For the owner to spend more than 20 hours per week running the business
4. Ideally have at least 10 properties.
However each case is different and so it is worth taking advice from an accountant, like Seagrave French, who specialise in helping property businesses, because your own circumstance may mean you comply