Pixel

Converting Property Partnerships Into Ltd

Gary Green
Gary Green
January 31, 2020

Stamp Duty Land Tax (SDLT) is a tax on land transactions in England and Northern Ireland.

SDLT was introduced by the Finance Act 2003 to replace stamp duty. Strictly, SDLT is not a stamp duty, but we will use the terms interchangeably in this article.

Today we'll explain how you may be able to avoid stamp duty by converting property jointly owned as a partnership into a limited company.

How SDLT Works

We should start by saying that you should always consult the HMRC page on Stamp Duty Land Tax, or work with a tax expert, before making any major financial or legal decisions.

HMRC has recently introduced some policies that make buy-to-let schemes less attractive. As a result, it's often more tax-efficient to transfer properties into an incorporated company.

Since 2016, a surcharge of 3% has been added to the stamp duty of second homes and buy-to-let properties. There is also a limit on the tax relief available for mortgage interest (capped at the equivalent relief for businesses).

As such, there are significant incentives to using a limited company to manage a property portfolio:

  • Mortgage interest tax relief is not restricted for corporation tax purposes
  • Succession planning is simpler
  • Lower tax rate on your profits
  • Legal protection as the company is a separate legal entity

Having said that, stamp duty would still typically apply on incorporation. But there is a way to avoid SDLT involving converting a partnership to a limited company.

Property Partnership Incorporation

100% relief on SDLT is available (in theory) in the event that you convert a partnership to a limited company. You have to meet the following conditions:

  • The ownership of the new company matches that of the original partnership (in terms of share allocation)
  • The partnership is registered with HMRC
  • There is a separate bank account
  • There is a full written partnership agreement

As long as this is all fully compliant, you don’t even need to have started with a Limited Liability Partnership (LLP). You can enjoy all the benefits of a limited company (legal protection, tax efficiency) while avoiding the burden of paying stamp duty twice when moving your property into a limited company from a partnership.

Husband And Wife Partnerships

It seems that HMRC takes a dim view of partnerships which are set up before incorporation specifically for tax purposes. In particular, if you create a partnership and then incorporate straight away (obviously as a SDLT dodge) you probably won't get away with it.

However, a husband and wife partnership is treated slightly differently.

Partnerships require "two or more people". However, a husband a wife count as two partners for compliance purposes. In some cases, they can argue that a partnership has already existed for some time before incorporation.

In the landmark case Ramsay v HMRC (2013) the married couple were successful in arguing that their "partnership" should be considered legitimate for business purposes. They were therefore allowed to take advantages of all the normal tax reliefs available to an incorporated company.

Final Thoughts

Tax laws around converting property partnerships into limited companies are complex and ever-changing. Make sure you stay up to date with the documentation from HMRC.

Or you may prefer to work with an expert such as Key Business Consultants. We've worked with hundreds of individuals, partnerships and limited companies to run their businesses in the most tax efficient way possible.

We also make sure you are fully complaint, and always represent you well to the authorities.

We would also suggest that you look for a suitable mortgage expert if you plan to own property through an incorporated company. There are a number of lenders who specialise in this area, and they will be able to give you the right advice from day one. You'll need to contact a specialist mortgage broker who'll be able to advise you and connect you with the lender.

If you'd like to discuss the stamp duty implications of buying property via a limited company, please get in touch.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
September 27, 2021
Choosing The Correct VAT Scheme For Your Business

Choosing the right VAT scheme is an important step for small business owners and can have a considerable...

September 21, 2021
How to Claim EIS Income Tax Relief in 2021

If you need to know how to claim EIS income tax relief and enjoy what is...

September 2, 2021
Recovery Loan Scheme - What Is It and How Do I Apply?

As businesses seek to re-open and recover from the global pandemic, there are various forms of...

August 16, 2021
The Super-Deduction Scheme - How Does It Work?

You may have heard the term 'super-deduction' recently and wondered if you could be affected by...

August 12, 2021
The Tax Benefits of Non-Domiciled Status for UK Residents

Having a Non-Domiciled Status if you reside in the United Kingdom can have great benefits for...

July 9, 2021
Stamp Duty Land Tax (SDLT) Surcharge for Non-UK Residents

Stamp Duty Land Tax (SDLT) rates have changed again for non-residents buying a home in England...

July 7, 2021
How Is Cryptocurrency Taxed & Do I Need to Fill A Self-Assessment?

Cryptocurrency may live online with no government control or borders, but if you are in the...

July 5, 2021
Venture Capital Schemes: Tax Relief Guide For Investors

When it comes to finding out what tax relief is available for investors using a venture...

July 2, 2021
Claiming Business Asset Disposal Relief in 2021

Business Asset Disposal Relief (BADR) used to be known as Entrepreneurs’ Relief before 6 April 2020....

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2021 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram