Can I Sell My House To My Limited Company?

The final stage of changes to income tax relief rules for landlords was completed in April 2020, five years after it was first announced. For many landlords, it now means that owning property via a limited company is significantly more beneficial than owning the property as an individual. The changes to income tax relief have left many landlords in or near the higher income tax band and consequently the costs associated with being a private landlord have increased. In this article, can I sell my house to my limited company, we take a look at the mechanism involved in transferring ownership of a property from personal to limited company ownership.

Free Initial Telephone Discussion

For a free initial discussion on how we can help you with the legal aspects of transferring a property to a limited company, get in touch with us today. We will review your situation and keep you regularly updated, discussing progress in a clear and approachable manner. Early expert legal assistance ensures no mistakes are made and also avoids the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or complete our online enquiry form and a member of the team will get back to you.

What is the process involved?

The term “transfer” isn’t entirely accurate, as moving your personally owned buy to let property into a limited company should be considered as a sale and purchase transaction. This means that the process is subject to the same additional costs and fees as any other property purchase. These can include:

Stamp Duty Land Tax 

Capital Gains Tax 

Legal fees 

Possible Early Redemption Charges 

For some landlords, these additional costs are prohibitive and prevent them from being able to move to a limited company investment structure. However, it should be noted that the long-term savings can offset these initial costs and it will depend upon your personal circumstances. You may need to discuss the possible taxation implications with your accountant or tax adviser.

Although you own the property, you cannot sell it at a discount to your limited company. This is because it is a sale and purchase transaction and tax implications must be considered. Consequently, the property must be sold at open market value. When the lender comes to value the property, they will do so as if it was any other property, meaning you will have to purchase it at its full value.

What makes this process easier than purchasing a brand-new property is that if the property has sufficient equity, you can use it as a deposit for your limited company. Called a director’s loan, this means that you won’t need to raise a whole new deposit to secure a limited company buy to let mortgage.

What are the advantages of buying property in a limited company structure?

The main benefit, which has become more prevalent since the income tax relief changes, is the tax differences. Instead of paying income tax on your rental income (with a restriction on the amount of relief obtained on interest costs to the basic rate of tax), your limited company pays corporation tax (currently 19%) on its profits. For those in or near the higher income tax bracket, charged at 40%, this can make a significant difference. The other positive of this is that you retain more of your profits, making it easier to re-invest and grow your portfolio.

Limited Company structures also offer potential Inheritance Tax (IHT) and Capital Gains Tax (CGT) benefits, as family members can be appointed shareholders and directors.

Any investment you put into the limited company, such as personal savings to use as a deposit, can be redeemed at a later date if recorded as a director’s loan. Similarly, profitable limited companies give you the potential to receive dividends, which are taxed differently to income. Also, by holding the property in a limited company, your credit score will be protected if you experience problems with receiving the rent.

What are the disadvantages?

Investing via a limited company can incur additional operational costs. For example, legal fees in the purchase and remortgage processes are often higher as there is extra work involved compared to investing in your personal name. Additionally, unless you’re willing to produce annual company accounts yourself, you will need to pay for an accountant to do this for you.

While the gap has decreased significantly in recent years, mortgages for limited companies do attract higher interest rates, mainly due to the additional underwriting that lenders have to complete. However, stress testing is often lower than for individual mortgages, meaning that your company’s income doesn’t have to be as high to meet lender affordability calculations.

How we can help

We have a proven track-record of helping clients transfer property to their limited companies. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

How to Contact our Commercial Property Solicitors

It is important for you to be well informed about the issues and obstacles you may face during the transaction. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.

To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Commercial Property, News Tagged as