Many buy to let landlords and people who own multiple properties have considered moving their property into a company following recent tax changes to the treatment of mortgage interest.
If you are one of these, you must first be clear that you can’t transfer property to your company and avoid paying stamp duty. In fact, you will most likely have to pay higher rate stamp duty for most transfers – see below.
This is something you’d normally find out at the latest when your conveyancing solicitor is briefed as to your intentions, although you are responsible for your tax affairs – your solicitor is not a tax specialist – so you should personally approach Her Majesty’s Revenue and Customs if you are unsure of your position.
Stamp Duty is always paid after completion of your conveyancing process.
What is a ‘Consideration’?
Stamp duty in these matters is calculated on your property’s full market value and not what’s known as the consideration. ‘Consideration’ in this context means what someone pays someone for something, such as what someone might pay you to move in to your house and take over half of it.
Now in the case of a normal transfer from person to person, stamp duty is chargeable in part on the consideration. A consideration is arbitrary and might be nothing, so if someone transfers part of their property to another for nothing, there’d be no stamp duty levied on the consideration.
Are you connected to a company in the eyes of the law?
The rule of thumb is that if you control a company or control it with other people connected to you, then you are linked to that company and stamp duty applies if you transfer property to that company.
Family ties means connected
However, if the company is controlled or part-controlled by your spouse/civil partner or relative or relative’s spouse/civil partner or your spouse/civil partner’s relative’s spouse/civil partner, then the law regards that you are still connected to that company and stamp duty charged on the full market value of the property still applies.
What if there’s no connection with the company?
If you’re transferring your property to a company and you have none of the connections outlined above with that company, then if there’s no consideration paid for the transfer, no stamp duty is charged on this element. If any consideration is paid to you, then stamp duty is payable depending on the amount of the consideration.
Do you have to pay the higher stamp duty rate (+3%) or basic rate?
If you’re transferring your property or properties to a company you’re connected with, you’ll have to pay the higher rate of stamp duty if either of these conditions are fulfilled for any of the properties involved:
- You receive a consideration of £40,000 or more
- Property is either a) Freehold or is b) Leasehold with a lease of less than or equal to 21 years left to run
For example, if you transfer one property to a company for no consideration and it is leasehold with a lease term of 40 years left to run, you’d pay the basic rate of stamp duty.
However, if you were transferring 2 properties to a company and received no consideration but one of these was Freehold, you’d pay higher rate stamp duty.
In practice, the vast majority of transfers from people to linked companies incur the higher stamp duty rate.
What are the current stamp duty bands for transferring a property to a linked company?
|Market Value of Property||Basic Rate||Higher Rate (+3%)|