SDLT on Rental Property Business Incorporation

It is our view that SDLT will be payable on transfer on the full value of property even if only the beneficial interest is transferred to the limited company, exactly the same as would be the case if the legal title was transferred. 

Our understanding is that prior to 1st April 2016 the rate of SDLT payable when six or more residential properties are transferred is that SDLT at a rate of 0% and 4% will become payable. The rate will be calculated by establishing the average property value and then applying the following table:-

HMRC reference LINK – note that “6 or more residential properties bought in a single transaction” are treated by HMRC and charged at “Non-residential and mixed use land and property rates”

Example: if your average property value is less than £250,000 you will need to pay 1% SDLT. I’ve heard it suggested on more than one occasion that very low properties could be added to a portfolio in order to lower the average value to just below the nearest banding. In some circumstances this may well make sense.

SDLT Relief

If you are incorporating a rental property business partnership then you may well be eligible for additional SDLT reliefs at the point of incorporation in order to mitigate SDLT completely. However, the property must have been purchased by the partnership from day one, otherwise three or more years needs to have elapsed since the transfer, otherwise you will be caught by HMRC’s GAAR (General Anti Abuse Rule). Therefore, beware anybody who tells you that creating a partnership by transferring some equity to a spouse (CGT free) just prior to incorporation will qualify you for SDLT relief – it wont!

Sadly there is no relief for sole traders or joint owners who have not traded as a partnership.

How are property values established?

To check that transfer values are realistic HMRC may use the HMLR House Price Calculator. It has been suggested they will consider tolerances of 5% either way. The alternative is to get professional valuations. It makes sense for the valuation to be as high as possible because the valuation that is accepted becomes the new base price for taxation purposes when properties are sold.

UPDATE following the Budget on 16th March 2016

Stamp Duty on commercial transactions is to be reformed. Our understanding is that bandings will be applied similar to residential property, albeit with a zero rate up to £150k and then 2% of any amount over £150K and up to up to £250K and then 5% of any amount over £250k. As an example, on a property that costs £300,000 the SDLT would be £4,500 – i.e. £0 on the first £150k, 2% on the next £100k (£2,000) and finally 5% on the next £50k (£2,500). If our understanding is correct then this will also impact on on related transactions of 6 or more connected property transactions (e.g. at incorporation of a property portfolio).

Where can I learn more?

We commissioned a team of experts to produce a comprehensive analysis tool to enable you to consider all of the costs and benefits associated with incorporation vs remaining as an individual landlord or partnership. Investing £97 to purchase the spreadsheet and some time to complete it could save you thousands in accountancy fees. Please see THIS LINK

Also see these related articles:-

How does s162 incorporation relief work for landlords?

Beneficial Interest Company Trusts – Avoid Refinancing When Incorporating

FAQ’s – Beneficial Interest Company Trusts

Landlord Incorporation – The Race Is On

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