Incorporation Relief offers landlords the opportunity to reduce their Capital Gains Tax (CGT) liabilities.

It does this by allowing you to defer paying Capital Gains Tax (CGT) on a property when transferring it to a limited company in exchange for shares. The deferred CGT only becomes payable when you eventually sell the shares.

This relief is automatically applied, and the new shares will have a reduced base cost. Be aware that selling these shares in the future may result in a higher CGT liability.

How can I qualify for corporation relief as a landlord

To qualify for Incorporation Relief, landlords need to show HMRC that they run their property portfolio as a business rather than a passive investment.

Although the difference between a property business and a passive investment isn’t clearly defined, key factors include the size of the portfolio and how actively it is managed.

If it qualifies as a business, transferring the portfolio to a limited company can defer CGT on the properties. However, SDLT still needs to be paid unless the transfer involves a partnership.

Benefits of incorporation

Incorporating can offer several benefits, including more tax-efficient remuneration planning, lower tax charges when selling properties, and no restrictions on tax relief for mortgage interest.

It allows for efficient pension planning and increases access to capital through share issuance, facilitating business expansion and investment opportunities.

Additionally, it provides enhanced liability protection by separating personal assets from business liabilities, thereby mitigating personal financial risk.

Incorporation also offers greater flexibility in structuring the ownership and transfer of shares, aiding in succession planning and ensuring a smoother business transition in the long term.

If you are considering transferring your property portfolio into a limited company for the tax benefits, it is important to do so properly. A smooth transition requires knowledge of the intricacies of the tax required.

Get in touch with one of our advisors if you are considering transferring your property, or if you have done so unsuccessfully in the past.