Can I Move My Buy-to-Let Property Into a Limited Company?

One of the main reasons is mortgage interest relief. Individual landlords are restricted in the way mortgage interest is relieved for tax purposes, whereas a limited company can usually deduct mortgage interest as a business expense when calculating its taxable profit.

A company structure can also be useful where profits are going to be retained and reinvested, rather than taken out personally straight away. It may also help with longer-term planning if you are building a portfolio, bringing in family members, or thinking about succession.

The important point: it is treated like a sale

Even if you own the company, HMRC treats you and your company as separate. So, if you transfer a property you own personally into a company you control, the transfer is normally treated as taking place at market value.

This can create two immediate tax issues:

• Capital Gains Tax for you personally, based on the increase in value since you bought the property.
• Stamp Duty Land Tax for the company, usually calculated on the market value of the property and often including the additional residential property surcharge.

These costs can be significant, so it is important to run the numbers before taking any action. A tax saving in future years may not justify a large upfront bill today.

Can tax reliefs help?

In some cases, incorporation relief may defer Capital Gains Tax if you are transferring a genuine property business into a company in exchange for shares. However, the rules are strict and not every landlord will qualify. A single buy-to-let property held as a passive investment is unlikely to be treated in the same way as an actively managed property business.

What about the mortgage?

Your existing personal buy-to-let mortgage will not usually just move across to the company. In practice, the company may need to buy the property using a new limited company buy-to-let mortgage. That can mean valuation fees, legal fees, arrangement fees and possibly early repayment charges on the existing mortgage.

Lenders often prefer a Special Purpose Vehicle, or SPV, which is a company set up specifically to hold property. Before creating a company or transferring anything, it is sensible to speak to a mortgage broker as well as your accountant.

When might a company make sense?

A limited company may be worth considering if:

• You are a higher-rate or additional-rate taxpayer.
• Your properties have significant mortgage interest costs.
• You plan to retain profits in the company and reinvest them.
• You are building a larger portfolio.
• You want a structure that supports longer-term planning.

It may be less attractive if you own one property with a large unrealised gain, low borrowing, or you need to extract all of the profits personally each year. Taking money out of a company can create further personal tax charges, so the comparison is not just personal tax versus corporation tax.

So, should you move your buy-to-let into a company?

The best answer is: only after looking properly at the numbers. Incorporating can be a sensible move for some landlords, but for others the upfront tax and refinancing costs outweigh the benefits.

At Wild & Co, we like to make decisions clearer. We can help you compare the personal ownership route with the limited company route, taking into account Capital Gains Tax, Stamp Duty Land Tax, mortgage costs, corporation tax, dividend tax and your longer-term plans.

If you are thinking about moving a buy-to-let property into a limited company, speak to the Wild and Co team before you do anything. A short conversation now could save you from an expensive surprise later. Call us on 01423 222710 or email info@wildandcoaccountants.co.uk