1. LANDLORDS
Are you looking to be more tax efficient and increase your rental income?
by saving on:
Capital Gain Tax (CGT)
Stamp Duty Land Tax (SDLT)
and Inheritance Tax (IHT)
Why is it important, more than ever to review your existing property structure?
Landlords are encountering several changes in tax legislation, which in turn will affect the Net Rental
Income. Here is a summary of what these include:
‘Wear and Tear Tax’ which enabled landlords to obtain a 10% deduction from their rental income.
This was abolished as of 6th of April 2015.
Stamp Duty Land Tax (SDLT) as of 1st of April 2016, has increased by an additional 3% for second homes, holiday
homes and buy to let properties.
Deduction of Mortgage Interest Relief for additional and/or Higher Tax Payers (45% and 40% respectively) is
restricted over a 4-year period, as of 6th of April 2017.
From 2020 tax relief, will only be available at the basic tax rate of 20%. So currently, landlords can deduct mortgage
interest plus other costs, before determining taxable profit. For simplicity, we will assume the landlord is a higher tax
payer here:
How Our Solution Takes Advantage of Statutory
Reliefs to Avoid CGT, SDLT & IHT
A Ltd company is set up (property transferred into
this normally would incur a CGT & SDLT charge).
Proprietors are named as directors. You would still
manage and have full control of the property
portfolio.
The assets are transferred to the Ltd company,
without capital gains tax liability or SDLT,
provided you meet certain conditions.
The value of the properties to the business are
uplifted to their current market value
The assets are exchanged for shares, to the
directors.
Protect against future IHT liabilities on your assets,
which would be equivalent to 40% at the time of
death. This is achieved by placing the shares into a
specialist trust, subsequently eliminating IHT.
The advantages of incorporating a rental portfolio in
summary are:
A company pays tax on income at 20% corporation
rate (from 2017, this will be 19% and 2020 will be
17%), whereas an individual(s) will pay tax at their
personal rate equivalent to either 20%, 40% and
45% determined by the amount that has been
earned.
Mortgage interest is relieved in full.
CGT is avoided.
From 6th April 2020, when the changes will have fully taken
effect
as opposed to being able to deduct the full
Mortgage Interest, you will only be able to reclaim the basic
rate deduction. Taking the same figures as above, let’s see the
effects of these changes:
UNDER CURRENT RULES PRE 6th APRIL 2016
RENTAL INCOME
MORTGAGE INTEREST COSTS
OTHER COSTS
PROFIT
TAX AT 40%
PROFIT AFTER TAX
£
10,000
5,000
1,000
4,000
1,400
2,600
As of 2020 6th April The income tax will only be reduced only
by a Basic Rate reduction. This has an overall increase in tax
of 62.5% compared to Pre-April 2016. If the property is highly
geared and/or the Interest Rates increase, this will have a
further impact on your tax to pay, which could take one into
the red. This could be the concern for many, wondering if Buy
To Let properties continues to be a lucrative option. This is
where we can assist.
NEW RULES FROM 6th APRIL 2020
RENTAL INCOME
MORTGAGE INTEREST OF 5,000 NO LONGER DEDUCTED
OTHER COSTS
RENTAL PROFIT
TAX AT 40%
LESS BASIC RATE MORTGAGE DEDUCTION
TAX PAYABLE
PROFIT AFTER TAX
INCREASE IN TAX
£
10,000
-
1,000
9,000
3,600
1,000
2,600
1,400
62.5%
Example: Husband and wife share a
property portfolio
The properties were brought
for £500,000 (the ‘base cost’)
There is an uplift of the base cost i.e. £500,000
to today's market value i.e. £1m
Capital Gain Tax Relief
PROPERTIES PLACED INTO
A LIMITED COMPANY
IN EXCHANGE FOR SHARES
If this solution is an answer to your property tax planning,
please do not hesitate in contacting
PRETIUM TAX PLANNING LTD
FOR FURTHER PROFESSIONAL INFORMATION & ADVICE
Fig. 1

2. DISCLAIMER
This fact sheet is written, produced and owned by PRETIUM TAX PLANNING LTD.
This fact sheet is not intended to give taxation advice or investment guidance.
The purpose of this document is to outline the comprehensive details of transferring property to a limited company.
Please consult your professional adviser for further information in order to see if the planning
Is suitable for you and your circumstance.
FAQs
Who qualifies?
Anyone who owns a property portfolio, with the objective to seek a profit.
Is there a minimum number of properties, which is required?
It is circumstantial, however as a rule of thumb, a minimum of 6 properties worth over £1 cumulatively.
Is there any CGT to pay on transferring the properties to a Ltd company?
This process, typically, would be deemed as a disposal. If you meet various conditions, one being that it is a
business which is actively managed. Often, statutory reliefs are available to those who incorporate their
ongoing business, in turn the costs of the assets of the business are uplifted to their current market value.
What is the stance of future disposals of properties in the future, post incorporation?
Disposals will incur corporation tax, which currently stands at 20% (and from 2017, 19% and from 2020,
17%). The increase in the value of the properties is from the point of incorporation, as the base cost was
uplifted to today’s market value therefore, corporation tax would be paid only on the gain from this point.
Taxation of rental income?
This is subject to corporation tax of 20% (from 2020 falling to 17%).
Is Interest relief available?
Yes, as of 2017 this would not be the case however, companies will get 100% relief.
Is there any Stamp Duty Land Tax (SDLT) to pay as the properties are transferred to a Ltd
company?
Transferring to an investment company could potentially induce a charge. This is dependent upon the value
and how the ownership is structured.
What qualifies for SDLT relief?
Where there is a partnership in place, SDLT should not be incurred however, each situation is unique and it
will need to be assessed accordingly. If there is no partnership in force, then SDLT quite possibly is due,
although upon transferring residential properties, this could be lower depending on the specific facts of the
situation.
Can parts of my portfolio be transferred only?
It is a condition of the legislation that, to receive the statutory reliefs that 100% of the property portfolio
needs to be transferred.
Where does one stand as income is released from the Ltd company?
Rental income, which is received as salary and dividends, is subject to normal income tax rules.
Is there any Inheritance Tax (IHT) to pay when transferring properties into a Ltd company?
Generally, there is no IHT liability, the share value would be in one’s estate.
What are the IHT rules concerning the shares in the Ltd company?
IHT is due, on the value of the shares as death occurs. The shares will not qualify, for Business Property
Relief and no other reliefs are available.
Can the shares be safeguarded against Inheritance Tax?
There is a further step, which involves setting up a specialist trust. Please get in touch to find out more.
• Property Tax & Inheritance Planning •
• Investment Planning • Commercial Loans •
58 Regent Road, Leicester LE1 6YJ | M: 07515 721763 | T: 0116 255 7272
E: ajay@pretiumtaxplanning.co.uk | W: www.pretiumtaxplanning.co.uk
For further information and queries please contact:
AJAY KHOSLA BSc (Hons.), Cert CII, DipPFS.
PRINCIPAL