The block on deducting interest and finance charges from residential rents for income tax purposes (introduced from April 2017), won’t apply to companies. For this reason, many landlords are looking at incorporating their property lettings businesses.
However, the big hurdle is the Stamp Duty Land Tax (SDLT) which is payable by the company when it acquires ownership of the properties. The SDLT rates start at 3% of the property value, progressing to 15% for properties worth £1.5m or more. The same rates apply for properties in Scotland subject to Land and Buildings Transaction Tax (LBTT), but from different valuation thresholds.
Lower rates of SDLT or LBTT apply when the transfer is of mixed residential and non-residential property, such as flats above commercial premises, or a workshop and house sold together.
It is possible to reduce the total SDLT bill where six or more residential properties are transferred in one transaction. The vendor pays SDLT based on the average value of the properties, rather than the individual values.
The SDLT can be reduced to nil in some cases where the property lettings business was operated through a genuine partnership made up of individuals. If those partners control the shares in the company which acquires the properties, the value of the properties transferred may be treated as nil for SDLT purposes, so that no SDLT is due.
Specialist advice should always be taken when transferring multiple properties in one transaction.