Limited Company for Landlord
The benefit of becoming a corporate landlord is that it allows you to retain profits at corporation tax rates of 20% and falling, and continue to offset 100% of finance costs against income despite George Osborne’s tax changes for individual landlords being phased in from April 2017. It works best for portfolios where mortgage debt is in excess of £1 million.
For sole traders, optimal costs can be achieved by restructuring in three steps over a period of three years.
Step one – Transfer your ownership (Two Choices)
- Immediately transfer any percentage of the beneficial ownership in your property rental business so your spouse via a Declaration of Trust. There is no CGT between spouses because there is no requirement to change legal ownership at HM Land registry to achieve this there is no SDLT payable and no need to disturb your existing mortgage arrangements ….. OR, if you are not married or don’t wish to involve your spouse …
- Immediately transfer 1% of beneficial ownership to somebody else (children, sibling, best friend etc.) and pay CGT on that 1% share plus SDLT on 1% of the value of the mortgage balances. As above, there is no requirement to change legal ownership at HM Land registry to achieve this hence there is no SDLT payable and no need to disturb your existing mortgage arrangements.
Step two : Submit Partnership Tax Return
Submit partnership tax returns for the next three years.
Step three : Open a Limited Company
After three years have expired, transfer 100% of the beneficial ownership of the partnership to NewCo and claim s162 incorporation relief to mitigate CGT and SDLT relief under FA 2003 section 15 land and buildings. Use a beneficial interest company trust to avoid costs of refinancing.
If you need any help regarding above matters please do not hesitate to contact Small Business Accountant . Call today 02070784371 or email us at info@small-business-accountant.org.uk