Stamp Duty Levies: Worth Investing in Property Through a Limited Company?

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Stamp Duty Levies Worth Investing in Property
Through a Limited Company?
A swiftly changing tax landscape is adding more
confusion to the pros and cons of purchasing a
rental property as an incorporated company vs as
a private individual. Many landlords have opted
to transfer ownership of property assets to an
SPV, a limited company specific to the property
letting sector. However, where the rental
property belongs to an existing company owner,
they might decide to transfer ownership or invest
in a new property through their commercial
business. In this guide, the Tod Anstee team
explores all the options, with comparable
information to help you make informed decisions
about which property ownership structure is right
for your portfolio.
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Stamp Duty Rates for Limited Companies, SPVs and
Individual Property Investors

• Stamp duty is payable by the property investor at
  the point of acquisition, but rates vary
  depending on your tax position and legal
  ownership status.
• Limited companies pay commercial stamp duty at
  15 if the property is intended as residential
  accommodation and costs over 500,000. A 3
  surcharge is automatically added, plus a further
  2 if the buyer is not a UK resident.
• However, the purchase may qualify for a different
  treatment if
• The business is a property rental company, for
  example, an SPV, AND
• The property is expected to generate a profit
  (e.g., not leased free of charge to a family
  member or employee).

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This factor is one of the key contrasts between
investing in property as an SPV and buying rental
assets through an incorporated business with
another purpose. SPVs pay the standard stamp duty
rates plus a 3 second homes surcharge on any
acquisition of any value over 40,000. Note that
the 3 applies regardless of whether you, or your
company, already own a private property. Individu
al investors pay these same standard stamp duty
rates and are also normally subject to the 3
second homes surcharge. Private investors, unlike
companies, can claim exemption from the second
homes levy if they do not own the home they live
in or any other residential property.
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Stamp Duty Rates for Companies
Companies pay stamp duty at a standard higher
rate of 15, plus a 3 surcharge if they purchase
a residential property. This rate applies to
investments of over 500,000 made by companies,
partnerships where one partner is a company, and
investment schemes. SPVs pay the normal stamp
duty rate as below, plus the 3 surcharge.
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Stamp Duty Rates for Private Individuals
Stamp duty thresholds changed on 23rd September
2022 and will remain as follows until 31st March
2025, any further announcements
notwithstanding. Property investors who purchase
residential accommodation as a private individual
pay these rates, plus 3, if they already own
another residential property.
Property Value Stamp Duty
Up to 250,000 0
250,001 925,000 5
925,001 1.5 million 10
Over 1.5 million 12
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The Tax Advantage of Owning a Rental Property
Through a Limited Company
An SPV works like any other limited company but
is designed for rental property ownership rather
than a trading business, with financial benefits
linked to stamp duty. Changes to mortgage tax
relief have driven more landlords to consider
managing their property business through a
limited company. The sliding scale gradually
reduced the amount of mortgage interest and other
expenses self-employed landlords could deduct
from their taxable profits to zero.
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Landlords that pay tax as a company rather than
as an individual can deduct 100 of their
mortgage costs from their revenue before
calculating a net profit against which they pay
corporation tax rather than income
tax. Generally, corporation tax and dividend tax
rates are lower than income tax, but particularly
for higher and additional rate taxpayers. For
landlords with high-value portfolios the
difference in tax exposure can be as great as
40. However, it is also important to remember
that company owners still need to pay income tax
on any profits they transfer to themselves from
the business. It is advisable to speak with an
independent financial adviser to calculate how
transferring property ownership might impact your
overall tax position.
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Other Tax Considerations for Landlords
While there are clearly multiple, potentially
complex factors to consider, additional tax
system elements could impact your decision. Stamp
duty and income tax are only two tax obligations
associated with owning a rental property through
any ownership structure.
Dividend Allowances
In April 2023, dividend allowances will drop from
2,000 to 1,000 this is the amount a company
owner can pay themselves from their business
tax-free, as a separate allowance to the annual
personal allowance, which relates to income
tax. That means company owners and shareholders
will pay more tax on dividends they distribute to
themselves from their profits.
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Corporation Tax
Corporation tax is set to increase from 19 to
25, although smaller businesses with profits of
50,000 or less will remain at the current
rate. Those with profits of 250,000 or more
will switch to the higher tax rate from April
2023, and moderately sized businesses will pay
somewhere between the two, calculated on a
marginal relief system.
Income Tax
Income tax is also due to increase, with lower
bands frozen, and the threshold for the
additional rate dropping from 150,000 to
125,140 private landlords with higher
profitability will pay an extra 5 income tax on
any profits between those values.
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Capital Gains Tax
Another reform due to hit in April 2023 is the
cut to capital gains tax allowances, dropping
from 12,300 to 6,000 and again to 3,000 in
April 2024. Landlords pay capital gains tax when
they sell a property based on the profit
made. Property owners who intend to sell
portfolio assets this year may wish to proceed
quickly to avoid paying an additional 6,300 on
the net gain. The positive for incorporated
companies is that there are several business
allowances, such as Business Asset Rollover
Relief. If a landlord sells a property and
replaces it within three years, they may be able
to delay paying capital gains tax.
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Owning a Rental Property Privately vs Through a
Company
This long list of considerations demonstrates why
there isnt a clear-cut answer. Although stamp
duty rates make the cost of owning a rental
property through a business appear less
attractive, this option may remain the most tax
efficient. It is important to work through every
element carefully before making any decisions
about how you own and manage your
portfolio. Please contact Tod Anstee at any time
if you would like to arrange a more detailed
conversation about any of the information
contained within this guide, or speak with your
accountant or financial adviser for advice on
your tax exposure and the most suitable route to
take.
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evies-worth-investing-property-through-limited-com
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