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Taxes and your Property Business

So you have property and your thinking about turning this business you’ve been running into a company.

What should you be worried about?  What will you have to pay in taxes?  You’re a buy to let landlord and you know want to know what constitutes a business? There are no simple answers to these questions but here are some things to keep in mind.

If you contribute your business to a company you will have to be aware the impacts of both capital gains tax (CGT) and stamp duty land tax (SDLT).

Let’s consider CGT.  If you contribute your property to a corporation so long as you only get stock in return the gain will be rolled in the base cost of the shares.  This does not mean that you won’t be taxed on the gain but it does mean the tax will be deferred until the gain is realized.

Bear in mind that this relief, s.162 TCGA 1992 incorporation relief, is only available to businesses.  So what constitutes a business? That was basically set out in Ramsay v HMRC [2013] STC 1764.  The court considered whether the activities related to the property business were a “serious undertaking earnestly pursued” or a “serious occupation”.

Another tax to be worried about is SDLT.  Generally if the contributing party is connected to the company to which the property is being transferred SDLT is payable following the market value rule of FA 2003 s. 54.  However bear in mind that where the transferor is a partnership, including an LLP, then SDLT may not be payable.  Bear in mind that joint ownership of property does not constitute a partnership.  So what does constitute a partnership?  Generally it must be “a business carried on in common with a view to a profit”.  There is no more strict definition than that.

So if you are an Accountant seeking advice for your buy to let landlords, or if you are a buy to let landlord, please come and talk to us at Adams law so that we can advise you on how best to structure your business.

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