Capital gains tax (CGT) and stamp duty land tax (SDLT)

Capital Gains Tax (CGT) on a home applies when it is sold or disposed of unless the following apply:

  • It has been your main home (Principal Private Residence) for all of the time you’ve owned it

  • Part of the home has not been rented out or used for business purposes

  • The grounds, including all buildings, is less than 5,000 square metres

If the above applies, then Principal Private Residence Relief ensures there is no CGT to pay.  

Stamp Duty Land Tax (SDLT) is payable when a property sold is worth £125,000, unless it is your first home, then SDLT is not payable unless the property is sold for £300,000 or more. If you plan to you swap anything of economic value for a property, e.g. shares, or another property, then you are still liable.

Tax planning and negotiation with the tax authorities

Many property owners may actually have to pay more tax on their property portfolios; however, since the budget changes only apply to individual owners and not to limited companies, many landlords have been considering changing their portfolios into limited companies in order to mitigate against some of the negative elements. However, the following elements need to be considered before the initial switch in ownership structure:

  • You must pay the CGT on the profits that have been made

  • You have to pay SDLT as this is a transfer of ownership

  • You have to refinance the property as you cannot opt to transfer the mortgage without consent from the lender

Budget changes and the implications on property

Keep in mind that you will be accountable for CGT on the profit made while moving the property into a limited company, irrespective of the price that was paid by the company. Even if the property was given to the company for £0, you will still be held to have moved the property within its market value.

As for SDLT, if there is no ‘chargeable consideration’ when giving away property or transferring ownership, you don’t need to pay SDLT or file a return.

Differences and similarities between limited companies and LLPs

Both limited companies and LLPs tend to have numerous similarities, one of the main ones being financial responsibility of the owners. There are however differences as well, such as:

  • The flexibility of an internal structure along with rights for the members

  • Opportunities for capital investment

  • Proper allocation of business profits and taxation

  • More flexibility in amending the partnership structure

Benefits of limited companies or LLPs

When changing the ownership of a property, the following points need to be factored in:

  • A company that is limited by guarantee is perhaps the best option for organisations that are non-profit. This structure is also worthwhile if you intend to employ many people or if you want to have the option open of selling your shares in order to get back capital investment

  • LLPs provide similar benefits as conventional partnerships, along with the advantage of the limited liabilities and financial responsibilities for the individual partners. An LLP structure can be a great choice especially for businesses that have a very limited number of employees or partners; especially in cases where each of the partners make a similar amount of contributions towards the business and enjoy an equal amount of responsibilities and rights

  • Tax efficiency allows you to keep the company’s money within the business. In cases where you will be making a greater annual profit than expected from your business, a limited company is more tax efficient option as you can leave a portion of the profits in the business and postpone tax by taking out the surplus in another tax year in the future.

Transferring a property into an LLP or a limited company or an LLP can be a complex process, depending on an individual’s circumstances. Speaking to a tax professional will help in working out the structure that works best for you.

Nick Bagga