Incorporation and property companies

The properties, tenancies and usually the mortgages move from you to a company you own, in return for shares and sometimes a loan account. Behind that sit a tax analysis of capital gains tax and SDLT, valuations, new company borrowing, legal transfers of each property, tenant and insurer notices, and an incorporation relief claim where relief is available. It is a project, not a form, which is why the modelling should come first.

Yes. Once the company owns the properties, the rent is the company's income, reported on its corporation tax return and in its accounts filed at Companies House, not on your Self Assessment return. You report only what you take out, such as dividends or interest. Rent received by the company also stops counting towards your personal Making Tax Digital threshold.

Because the SDLT rules for partnerships can substantially reduce the SDLT when partnership property moves to a company owned by the partners. HMRC looks closely at whether a real partnership existed, how long it had run, whether property was properly brought in, and whether steps were pre-arranged. The general SDLT anti-avoidance rule can apply to schemes that exploit the partnership rules, so the facts must stand up on their own.

ATED charges are based on bands of value, and the value is fixed at a valuation date rather than updated each year. For the current five-year cycle, the valuation date is 1 April 2022, or the date of acquisition if the company bought the property later. If a company owns a dwelling worth more than £500,000 on that basis, it is within ATED, and a return or relief claim is needed each year.

Some things, yes. A company has no annual exempt amount for gains and can't claim private residence relief. Profits you take out are taxed again as dividends or interest. Every residential purchase attracts the SDLT higher rates, and dwellings over £500,000 bring ATED returns. Company mortgages may cost more. These are the trade-offs against full interest relief and lower tax on retained profits.

It's a close company that doesn't exist wholly or mainly for permitted purposes, and it can't use the 19% small profits rate or marginal relief, so pays 25% on all its profits. Holding land let commercially to unconnected people is a permitted purpose. Letting to the owners, their relatives or other connected persons isn't, so a company letting homes to family can find itself taxed at the main rate.

For incorporation relief, the company must issue shares in exchange for the business, so the shares go to the people who owned the business: you, or you and your co-owners in your existing proportions. Changes in shareholding, for example bringing in children, are usually separate steps afterwards, each with its own tax position. Planning the share structure at the outset avoids having to reorganise it later.

Yes. Incorporation relief requires the business to be transferred with all its assets, but cash can be kept back without losing relief. Many landlords keep a personal cash reserve for this reason. Everything else used in the letting business, including all the properties, normally has to move. Keeping a property back can mean the whole business hasn't been transferred, so relief would not apply.

Yes. A property company prepares annual accounts filed at Companies House, a corporation tax return, and a confirmation statement each year. It may need ATED returns, payroll if it pays salaries, and form CT61 returns if it pays interest to directors. These running costs are higher than for personal ownership, so they should be included when you compare the two.

Yes, but the land taxes differ. In Scotland, Land and Buildings Transaction Tax applies, and the 8% Additional Dwelling Supplement applies to most residential purchases by companies. In Wales, companies always pay the Land Transaction Tax higher residential rates. Corporation tax is the same across the UK, but income tax on what you take out depends on where you live.

It can make gradual succession easier. Shares can be given in stages, different classes can separate income and growth, and a Family Investment Company can direct future growth to children while parents keep control. Shares in a property investment company don't usually qualify for Business Relief, though, so the planning works by moving value over time rather than by an exemption.