With restrictions on interest relief for individual landlords about to start phasing in from April, more investors than ever are looking at the possibility of transferring their business to a company. Carl Bayley, author of 'How to Save Property Tax' and 'Using a Property Company to Save Tax', looks at some of the key issues surrounding this 'leap of faith'.
Using a company to invest in property has always provided potential tax advantages. The restrictions in interest relief for individuals renting out residential property due to start taking effect in April 2017 have provided a further incentive for many investors to look at using a company. For this reason, I will focus on residential property businesses throughout this article.
Investing in new properties via a company is reasonably straightforward, but transferring an existing property business into a company is fraught with problems: although it could result in major savings in the future too!
The Big Three
There are three major issues to consider when transferring property into a company:
Capital Gains Tax ('CGT')
Stamp Duty Land Tax ('SDLT')
Dealing with outstanding mortgages
Dealing with lenders holding outstanding mortgages over the properties to be transferred is a critical issue. Some investors have used a Deed of Trust arrangement (also known as a 'Beneficial Interest Trust') to avoid the need to re-mortgage properties. This does not alter the tax position on the transfer, but it is essential to ensure that any legal or contractual requirements relating to the outstanding mortgages are dealt with appropriately. Needless to say, professional advice is essential.