Most landlords start their portfolio in their own personal name, perhaps along with a spouse or business partner. In time, as a typical portfolio moves from initial losses to substantial profits - and tax bills! Many landlords then look at using a company to mitigate income tax, as companies pay tax at 20% on up to £300k of profits. This article looks at whether it makes sense to transfer property into a company to save tax.

Why would you transfer your properties into a company?
The main reason that landlords look at transferring property into a company is if there are substantial rental profits being taxed at 40% or more - since a small company only pays tax at 20%.

Clearly, if there are no rental profits (i.e. tax losses are generated), or if the investor's tax rate is 20%, there would be little tax motivation to make the transfer. Even those investors that are paying 40% income tax need to consider whether the  costs and 'hassle factor' of running a company are worth the tax saving. As a rule, there should be at least £5,000 of rental profits being taxed at 40% before the concept of using a company route should be considered.

Using a company is more about saving income tax rather than capital gains tax - the net rate of CGT payable for many investors is lower than for companies.