Transferring a Property to a Limited Company Without Stamp Duty

In most cases, where a property is transferred to a limited company connected with the owner, SDLT is payable by the company based on the property’s market value, even if no money changes hands. There are limited circumstances where the SDLT partnership rules may reduce the SDLT charge, potentially to nil, particularly where a genuine property partnership is incorporated. However, this is not a general SDLT incorporation relief and does not apply simply because a landlord transfers property into a company. 

At Starck Uberoi Solicitors, we regularly advise clients on property transfers, limited company purchases, buy-to-let transactions, refinancing and SDLT issues. If you are considering moving property into a company, it is important to understand the tax, mortgage and conveyancing consequences before taking any steps. 

What Happens When You Transfer Property to a Limited Company? 

A limited company is a separate legal person. This means that transferring a property from your personal name into a company is treated as a transaction between you and the company. 

For SDLT purposes, the company is usually treated as acquiring the property. Where the transfer is between connected parties, such as an individual and a company they own or control, SDLT is generally calculated by reference to the market value of the property, not just the price actually paid. 

This means SDLT can still be payable even if: 

• you gift the property to the company; 

• the company pays nothing for the property; 

• there is no mortgage on the property; 

• the property is transferred for less than market value; 

• you are the sole shareholder and director of the company. 

In practical terms, HMRC will usually look at what the property is worth on the open market, rather than simply what the company pays you. 

Because SDLT may be calculated by reference to market value, it is sensible to obtain a reliable valuation before the transfer. HMRC may question an undervalue, particularly where the transaction is between connected parties. For an instant and free SDLT calculation, please find our limited company SDLT Calculator here.  

Can You Gift a Property to a Limited Company Without SDLT? 

Usually, no. 

A gift to an individual may sometimes have a different SDLT outcome depending on whether there is mortgage debt or other consideration. However, a transfer to a connected limited company is treated differently. If you control the company, the SDLT charge is normally based on the property’s market value. 

For example, if you own a buy-to-let property worth £400,000 and transfer it to a company you own, the company may have to pay SDLT based on £400,000, even if the company pays you nothing. 

This is one of the most common misunderstandings in this area. A transfer to your own company is not ignored for SDLT purposes simply because you still control the company after the transfer. 

Is There Any Incorporation Relief from SDLT? 

There is no general SDLT incorporation relief for individual landlords transferring properties into a limited company. 

Some clients have heard of “incorporation relief”. It is important to distinguish between: 

• Capital Gains Tax incorporation relief, which may be relevant where a business is transferred to a company; and 

• SDLT partnership rules, which may reduce or eliminate SDLT in some genuine partnership incorporation cases. 

For SDLT, relief is much narrower. In some cases, where a genuine property partnership transfers its property business to a company and the ownership structure is carefully aligned, the SDLT partnership rules may reduce the SDLT payable, potentially to nil. However, this is a technical area and HMRC may scrutinise whether there was a genuine partnership business, rather than simply joint ownership of investment property. 

Simply owning property jointly, including with a spouse, civil partner or family member, does not automatically mean there is a partnership for SDLT purposes. The position depends on the facts; the legal structure and the history of how the property business has been operated. Relevant evidence may include partnership accounts, tax returns, profit-sharing arrangements, business records and the way the rental business has actually been managed. 

If you are considering incorporation, the SDLT, Capital Gains Tax, mortgage and company tax consequences should all be reviewed before any transfer takes place. 

Technical Note 

For connected company transfers, SDLT is usually calculated under the market value rule in section 53 Finance Act 2003. This means the company may be taxed as if it paid full market value, even where the transfer is a gift or for nominal consideration. 

The general chargeable consideration rules, including debt assumption, may also be relevant in some cases, but section 53 is often the key rule for transfers to a company controlled by the seller. Partnership transfers are dealt with under the separate SDLT partnership rules in Schedule 15 Finance Act 2003, which may reduce the SDLT charge in genuine partnership incorporation cases. 

What SDLT Rates Apply When a Company Buys Residential Property? 

A company buying residential property will usually need to consider the higher residential SDLT rates. In many company buy-to-let or investment purchases, the higher rates for additional dwellings apply, which are generally 5% above the standard residential SDLT rates. 

What About Mixed-Use or Non-Residential Property? 

The SDLT position may be different if the property is mixed-use or non-residential. A mixed-use property is one that includes both residential and non-residential elements, such as a flat above a shop, or genuinely commercial land or premises included in the same transaction. 

Where a property is properly classed as mixed-use or non-residential, SDLT is usually calculated using the non-residential rates, rather than the residential rates. This can sometimes result in a lower SDLT liability than a purely residential transfer, particularly where the higher rates for additional dwellings would otherwise apply. 

That said, the classification must be correct. HMRC may challenge mixed-use treatment if the non-residential element is artificial, minimal or not properly evidenced. Buyers and companies should therefore be careful before assuming that non-residential rates apply. 

For a company purchase, the market value rule may still apply if the company is connected with the seller. The difference is that the relevant SDLT rates may be non-residential or mixed-use rates rather than residential rates. 

Can You Transfer Your Main Home to a Limited Company and Buy Another Property? 

Some clients consider a buy-to-let structure. This is where they transfer or sell their existing main residence to a limited company, often with the intention that the company will let it out, and then they buy a new home personally. 

This can sometimes produce a different SDLT result on the new personal purchase. 

If you dispose of your previous only or main residence to the company before buying your new home, you may be treated as replacing your main residence. In that situation, you may only pay the standard residential SDLT rates on the new home you buy personally, rather than the higher rates for additional dwellings. 

However, this does not mean there is no SDLT overall. The company’s acquisition of your former home is still a separate transaction and the company may have to pay SDLT on that purchase, usually based on the property’s market value. 

So, in a let-to-buy scenario, the SDLT analysis often involves two separate transactions: 

1. The company’s purchase of your existing property 
   The company may pay SDLT based on market value, potentially at higher residential rates. 
2. Your personal purchase of the new home 
   You may pay standard residential SDLT rates if the replacement of main residence rules are satisfied. 

This type of planning must be handled carefully. Timing, ownership, occupation history, lender consent and the intended use of the old property can all affect the position. It also depends on the transfer to the company being a genuine completed disposal before, or on the same day as, the new purchase. 

The individual should not retain a legal or beneficial interest in the former home, and any spouse, civil partner or co-purchaser position must also be checked. If the company is merely holding the property as nominee or bare trustee, or if the individual retains a relevant interest, the SDLT analysis may be different. Find more information on our buy-to-let services here.  

What If There Is a Mortgage on the Property? 

If there is an existing mortgage, you cannot simply transfer the property to a company without dealing with the lender. 

Most residential and buy-to-let mortgages prohibit a transfer of ownership without lender consent. The existing mortgage will usually need to be redeemed or replaced with a company buy-to-let mortgage. The lender will also need to be satisfied with the company structure, the property value, rental income and affordability. 

The mortgage position can also affect the practical funding of the SDLT and completion costs. For example, the company may need to raise sufficient funds to redeem the existing loan, pay any SDLT, cover legal fees and complete the transfer. 

At Starck Uberoi Solicitors, we can liaise with lenders and brokers as part of the conveyancing process. Where appropriate, we can also recommend brokers we work closely with to help ensure the legal, lending and funding aspects of the transaction are properly coordinated. 

Other Tax Issues to Consider 

SDLT is only one part of the overall picture. Transferring property to a limited company may also raise other tax issues, including: 

• Capital Gains Tax for the individual transferring the property; 

• Corporation Tax for the company in future; 

• Income Tax versus Corporation Tax treatment of rental profits; 

• Annual Tax on Enveloped Dwellings, where applicable; 

• future tax on extracting profits from the company; 

• refinancing costs and lender fees; 

• potential inheritance tax and estate planning considerations. 

A company structure can be useful in the right circumstances, particularly for some landlords and investors. However, it is not automatically better, and the upfront SDLT and refinancing costs can be substantial. 

Common Mistakes Property Owners Make 

Common mistakes include assuming that: 

• a transfer to your own company is tax-free because you still control the company; 

• no SDLT is payable because no money changes hands; 

• joint ownership automatically qualifies as a partnership; 

• Capital Gains Tax incorporation relief also removes SDLT; 

• a lender will automatically agree to the transfer; 

• the company can take over the existing mortgage without a new mortgage offer; 

• the higher SDLT rates do not apply to company purchases; 

• mixed-use or non-residential rates apply simply because there is some land or incidental commercial use; 

• the transfer will automatically allow you to buy another home at standard SDLT rates. 

These assumptions can lead to unexpected SDLT liabilities, delays, lender issues and, in some cases, transactions that are no longer commercially worthwhile. 

How Starck Uberoi Solicitors Can Help 

At Starck Uberoi Solicitors, we assist clients with transfers of property to limited companies, buy-to-let purchases, refinancing, transfers of equity and SDLT issues. 

We can help you understand: 

• whether SDLT is likely to be payable; 

• whether any relief may be available; 

• how the market value rules apply; 

• whether the transaction affects a planned purchase of a new main residence; 

• whether mixed-use or non-residential SDLT rates may be relevant; 

• what the lender will require; 

• what documents are needed for the transfer; 

• how the transaction should be structured from a conveyancing perspective. 

If you are considering transferring a property to a limited company, Starck Uberoi Solicitors is happy to help you review the legal and SDLT position, coordinate with your broker or lender, and guide the matter through to completion. 

To discuss your proposed transfer contact Starck Uberoi Solicitors by email at solicitor@starckuberoi.co.uk or call 020 8840 6640. 

Or you can get an instant conveyancing fees quote via our online conveyancing fees calculator.

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