Ilyas Patel Accountants in Preston
Ilyas Patel Accountants in Preston
Incorporation Relief is a powerful tax incentive that allows landlords to delay paying Capital Gains Tax (CGT) when transferring their property business into a limited company in exchange for shares.
This relief can also help landlords save on Stamp Duty Land Tax (SDLT). But how exactly does Incorporation Relief work, and what do landlords need to know to take full advantage of this opportunity?
(Read Time: Approx. 3 minutes)
Incorporation Relief enables landlords to postpone CGT when they transfer their property portfolio into a limited company in exchange for shares.
This tax benefit applies automatically at the point of transfer, with no need to apply separately. The CGT is deferred until the landlord sells the shares in the company.
However, it’s essential to be aware that the shares in the new company carry a reduced base cost for tax purposes.
This means that when these shares are eventually sold, the CGT liability could be higher than expected.
To benefit, landlords must prove to HMRC that they are running a business rather than merely holding property as a passive investment.
The line between the two can be subtle, but key factors include the size of the property portfolio, and the level of active management involved.
If HMRC agrees that the portfolio is operated as a business, the landlord can delay paying CGT upon transferring the properties to a limited company.
For landlords operating within a partnership, it can extend to SDLT savings as well.
If the partnership transfers its property portfolio to a limited company, it might be possible to avoid SDLT entirely.
To qualify, the partnership must demonstrate genuine business collaboration, with substantial active involvement in managing the property.
Additionally, the partnership should ideally have been established for a significant duration, commonly around three years, before the incorporation.
The advantages extend beyond just delaying CGT.
By transferring property into a limited company, landlords can enjoy more tax-efficient remuneration planning and lower tax charges when selling properties.
Additionally, landlords face no restrictions on tax relief for mortgage interest, and they can benefit from more effective pension planning.
Nevertheless, incorporating a property portfolio involves navigating complex tax regulations.
Landlords must carefully assess their eligibility for Incorporation Relief and be prepared for the potential tax implications of selling shares at a later date.
Incorporation Relief provides landlords with a strategic way to manage their tax liabilities when transferring property portfolios into limited companies.
By deferring CGT and potentially avoiding SDLT, landlords can significantly optimize their tax positions.
However, the complexities of qualifying for and applying this relief mean that professional tax advice is essential.
Contact Ilyas Patel Accountants today to learn how we can support your tax planning needs and help you make the most of your property investments.
Fill out our form here for any questions, give us a call at 01772 788200, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel