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Property Business Incorporation

The Incorporating property portfolios is suitable for people who own property portfolios either in their own name or in conjunction with other family members. It enables you to transfer the property portfolio to a limited company in a tax efficient manner. It utilises statutory tax reliefs that enable individuals to transfer businesses to a limited company without triggering a capital gains tax charge subject to various conditions.

Please note that incorporation is not suitable for all property portfolios and for all individuals. We would need to consider your specific circumstances in detail. In addition you should be aware that there are some downsides that you should consider before taking a final decision, for example companies are subject to additional compliance obligations which will mean higher annual compliance costs.

Practical Steps

You would establish a limited company

You would be appointed as shareholder and director of the company.

The properties would be transferred to the company.

The company will issue shares to you.

The properties are re-registered in the name of the company.

Tax Implications

Capital Gains Tax

· In most cases no capital gains tax should arise on the transfer to the company.

· Furthermore the company will acquire the properties at market value. Any subsequent property disposals will only be subject to tax on future increases in value.

Tax on Income

· From the date of incorporation the rental income will be taxed at corporate rates of tax rather than personal rates of taxes, 40/45%.

· The restrictions on tax relief for mortgage interest for higher rate taxpayers will not affect property held in a company

Frequently Asked Questions

Who is incorporation suitable for?

The incorporation of property businesses is suitable for anyone who owns investment property.
What is the minimum value of assets that property incorporation is suitable for?

It will depend on the particular circumstances but typically incorporating a property business is not suitable for property portfolios worth less than £1m.

Can the family home be transferred to the property company?

Potentially yes but in most cases it would not be advisable.

What are the capital gains tax implications of transferring properties to the company?

The transfer of properties to a limited company is a disposalfor CGT purposes. However where the property portfolio constitutes an actively managed property business then a statutory relief should apply such that the gains are rolled over into the base cost of the shares issued.

Is the capital gain always held over in full?

Generally yes but the hold over can be restricted where the debt secured on the properties exceeds the base cost for tax purposes.

Does the legislation define what an actively managed property
business is?

No, but there is a substantial amount of case law which has looked at the definition of a business. It is important that the portfolio is run along business lines rather than simply held as an investment. We can review the portfolio and advise whether the portfolio is likely to qualify.

As you will appreciate these are only initial, basic questions. We have more answers for you in our FREE factsheet which you can download for Free HERE