Transferring Property Ownership to a Company: What Does This Mean for Tax?

Transferring property ownership is a strategic move that many investors consider, whether to streamline estate planning, optimise tax efficiency, or facilitate business growth. However, this process carries significant tax implications, particularly when transferring property to a company. Understanding Capital Gains Tax (CGT), Stamp Duty Land Tax (SDLT), and VAT is crucial to making informed decisions and avoiding unexpected costs – below, we run through each of these facets of transferring property ownership so you are adequately prepared for every eventuality. 

Capital Gains Tax (CGT) and Property Transfers

Capital Gains Tax (CGT) applies when you dispose of an asset that has increased in value, including property. Even if you’re not selling the property in a conventional sense, transferring it to a company you own is considered a disposal by HMRC, meaning CGT may still be due.

Can You Reduce CGT?

In some cases, investors can defer CGT using Incorporation Relief. This relief applies if:

• The property is part of a business (not just a single rental property).
• All business assets, excluding cash, are transferred to the company.
• The company issues shares to the individual in exchange for the property.

If these conditions are met, CGT can be deferred until the company eventually sells the property. However, if you don’t qualify for incorporation relief, CGT is due on any profit made since acquiring the property. It’s important to assess whether this relief applies to your situation, as failing to do so could result in an unexpected tax bill. Consulting a tax advisor before making any property transfers can help you navigate the rules effectively and avoid costly mistakes – our team personally recommend Laurence Hodgens of Hodgens Global if you are seeking reliable financial advice.

Stamp Duty Land Tax (SDLT) and Property Transfers

Stamp Duty Land Tax (SDLT) is another key consideration when transferring property ownership. The transaction is treated as a sale, meaning SDLT is based on:

• The market value of the property, or
• The amount paid for the property (whichever is higher).

For example, if the market value of the property is £300,000, SDLT is calculated based on that figure—even if no money actually changes hands. This often catches investors off guard, as they assume SDLT only applies when a property is sold for a price.

Additionally, if the property has an existing mortgage, SDLT may be payable on the outstanding debt that is assumed by the company, which further increases the tax liability. Non-resident companies transferring property ownership in the UK are subject to a 2% SDLT surcharge, making it even more important to factor in SDLT costs when planning a transfer. 

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VAT Implications in Property Transfers

VAT generally does not apply to residential property sales. However, VAT could be a factor if the property is used for a taxable business, such as serviced accommodation or commercial property rentals.

A helpful tax rule known as Transfer of a Going Concern (TOGC) may exempt the transaction from VAT if:

• The company continues to operate the rental business.
• The company is VAT-registered and meets the necessary conditions.

Utilising TOGC can help investors reduce upfront costs and streamline the transfer process. However, it’s important to ensure that the company receiving the property meets all the conditions for TOGC to apply. Failing to do so could mean that VAT is chargeable on the transfer, adding a significant financial burden to the transaction. Investors should also check whether opting to tax a property could impact their VAT obligations.

Other Considerations When Transferring Property to a Company

Beyond CGT, SDLT, and VAT, there are other factors to consider when transferring property ownership to a company:

Income Tax and Corporation Tax

If you transfer a property to a company, rental income will no longer be taxed under personal income tax rates. Instead, it will be subject to corporation tax, which is often lower than higher-rate income tax. This can be beneficial for investors looking to retain profits within the company for reinvestment.

Mortgage Considerations

Many lenders have different mortgage products for corporate entities, and moving a property into a company could mean refinancing at different interest rates. Be sure to check with your lender before initiating a transfer.

Long-Term Investment Strategy

Transferring property ownership isn’t just about short-term tax savings—it should align with your broader investment strategy. Consider whether holding property in a company structure aligns with your future goals, such as investment planning, scaling a property portfolio, or reducing personal tax liabilities.

Planning Your Property Transfer Wisely

Transferring property ownership requires careful tax planning to ensure compliance while maximising financial benefits. Whether you’re looking to restructure your portfolio, reduce tax liability, or pass assets over efficiently to a company, understanding the tax implications is absolutely essential to avoiding common pitfalls.

That’s why we’ve created The Complete Guide to UK Property Taxation alongside Hodgens Global to help you make the most informed decisions about your property. We’ve combined our unrivalled experience in UK property investment with Hodgens’ expertise in tax and finance to provide you with a comprehensive guide to the fiscal implications of investing – simply download your free copy below, or get in touch with our team to be referred to our trusted tax panel.