Transferring Property To A Limited Company In 2023

(Last Updated On: November 23, 2022)

The announcement restricting tax relief on financing costs will affect all buy-to-let residential landlords with finance costs.

Those effects have been visible since April 6, 2017. After the government announced that buy-to-let properties could be transferred to limited companies, landlords have begun considering moving their portfolios.

If you have been living in an area where the property market has been solid over the last few years, you might wonder whether transferring your property to a limited company would make sense.

This can help you to reduce your tax liability. However, you may also find that your mortgage repayments are higher. If this is the case, it can affect the amount of money you can spend on improving the property. However, you should be OK with this.

There are many reasons why transferring your property to a limited company makes sense. The main reason is that you will be able to pay less tax.

Generally, companies are only subject to a percentage tax on their earnings. Additionally, the company’s profits are subject to a cap on the amount that may be earned.

Regardless of the gains made by the company, you can take money out of the company for your personal use.

As a sole proprietor, your income bracket is determined by your income bracket. Individuals paying a high tax rate pay up to 40% of their income in taxes, which can rise to 45% at the highest rate.

What is a Limited Company in the UK?

We tend to associate limited companies with limitations and a lack of freedom when we discuss them. The term “limited company” is used to refer to a legal entity that is independent of its parent company. 

A limited company is a company whose shares are traded on a stock exchange. Limited companies are also known as private companies, as individuals own them.

It is advantageous to operate a business as a limited company. It is essential that the name of a limited company is unique and is not already in use by another company. The term has several possible endings, including Limited, Ltd, and Welsh equivalents.

If things don’t turn out as planned, a limited company offers an added layer of security and protection. If no fraud or scam has occurred, limited liability means that you are not liable for any financial losses made by the company. This is other than the amount you have invested.

As a result of its distinct entity status, a limited company may have an easier time securing business investment and financing than you. Tax accountants can provide professional assistance and consultation for a limited company to maximize its tax advantages.

Even though many shareholders have retired or resigned, the company provides security for its employees. It is less time-consuming and more successful at making decisions when the principal shareholders are the company’s directors.

The importance of keeping up with legislation and industry reforms changes cannot be overstated. Limited companies, however, have a limited number of liabilities. A few of these include registering your company and adhering to the most recent tax laws. However, you can hire a professional accountant or contract with an established accounting firm near you. This is because an accountant specializes in property accounting.

Methods of holding investment property

UK buy-to-let and residential properties can be held using an unlimited range of methods. Each approach has advantages and disadvantages based on an individual’s or family’s particular circumstances.  

In general, you may hold a buy-to-let property in three ways: personally through your name, through a limited company, or through a trust. As far as liabilities and tax implications are concerned, each approach differs slightly.

Every year, a tax is owed on enveloped dwellings (ATED), also known as the annual tax during ownership. It is possible to find yourself unexpectedly in a higher tax bracket than you initially anticipated. To calculate liabilities and tax returns correctly and effectively, it is advised to consult with a reputable accountant. 

Pros of changing your property to an LTD

  • The corporation tax return will be filed, and corporation tax will be paid on profits rather than income. 
  • In the 2021/22 tax year, the corporation tax rate will be 19%, lower than personal income tax. Profits earned through a company will also be exempt from National Insurance.
  • The recent restrictions on mortgage interest relief will no longer apply to corporations when they pay corporation tax. 
  • There will also be no restrictions on the ease of finance costs. 

Cons of transferring property to a LTD company

A limited company may seem like an easy way to own property; however, unexpected risks may arise. 

  • Even though corporate taxes are lower than income taxes, you may be required to pay income taxes on profits extracted from the company. 
  • Considering the capital gains tax implications, the market value of a property transferred to a company is subject to Capital Gains Tax (CGT). CGT applies regardless of whether you gift property to a limited company or dispose of it at a lower value. If you have shares or shares and cash, consider claiming S162 Incorporation Relief. 

Conclusion

In conclusion, In the UK, property transfer to a limited company is subject to specific requirements. These include registering with Companies House within seven days of making the transfer and providing the relevant information required by Companies House.

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