With the introduction of interest rate restrictions from 2017/18 for individual Property Investors there has been a lot of interest in incorporating property businesses.
Technically property investment isn’t a business although HMRC seem to have blurred the lines with their Making Tax Digital documents which describe Property Investment as a Business.
The recent clarification from the Ramsay case has meant that even investors with a small portfolio are likely to qualify for incorporation tax relief provided the landlord is sufficiently active in managing their properties. Claiming Incorporation Tax Relief rolls forward the capital gain into the company.
So that leaves SDLT and re-financing costs as the next major hurdles.
The rules on SDLT for Partnerships are in the Finance Act 2003 Schedule 15 and amendments in the Finance Act 2006 Schedule 24.
It is complicated but essentially it comes down to the following formulae
MV x (100 – sum of lower proportions (SLP))%
What this means is that if the land being put into the partnership is effectively retained by the transferor-partner (or persons connected with the transferor) after the transaction, you basically end up with:
MV x (100-100) = £0
So a husband and wife partnership owning 50% each could transfer the property to a company for 50% of the shares each and in theory there would be no SDLT charge.
To qualify as a Partnership or LLP:
- You need to be registered with HMRC
- You need a partnership agreement
- You need separate bank accounts
- Leases and Agreements need to be in the name of partnership
HMRC also require that any restructuring is for Commercial Reasons and not to avoid tax, otherwise it will be caught by anti tax avoidance rules.