Exploring Ownership Transfer Options for Rental Properties – Tax Benefits and Hurdles

Mr Etherington said: “In addition to the cost of stamp duty, a major hurdle for owners wishing to transfer their properties into a corporation is capital gains tax.

“This liability can sometimes be negated if the owner is eligible for incorporation relief – benefiting from it is complicated, but often worth exploring by owners with larger portfolios managed as a business. . »

Mr Fell said incorporation has other disadvantages, such as higher accounting fees when filing company results and higher mortgage interest rates.

He added: ‘Although a company can be set up relatively quickly and inexpensively, the property must be sold to the company at market rate, which will require an independent valuation for stamp duty purposes.

“If the property is mortgaged, this transfer will also require the agreement of the lender. Some rental lenders don’t lend to a business, which means it’s usually best to transfer ownership when the mortgage reaches the end of a fixed term.

It should be noted that the recent rise in corporation tax only applies to businesses with profits over £50,000 a year, which means that owners below this threshold will be protected and continue to pay the previous rate of 19%.

Change ownership distribution

Mr Etherington said: “Married couples and civil partners could change the ownership of their rental property – which can bring tax benefits. »

For married couples or civil partners who own rental property, standard HM Revenue & Customs policy is to split any rental income on a 50/50 basis. This means that all rental profits are taxed equally for each partner.

“Unfortunately, this standard treatment is not always good news for the couple from a tax point of view. For example, if one partner earns more than the other, it often makes sense that the lower earner gets a bigger share of the rental profits,” Mr Etherington said.

There are two reasons for this. This may be because the low-income person is not using all of their personal allowance or because they are in a lower tax bracket.

“Similarly, if one of them is a higher rate taxpayer and the rental property has a mortgage, they may not get full tax relief for mortgage interest, unlike their spouse or civil partner,” he added.

Giving a property to a spouse if they still have a mortgage attached may incur a land stamp duty cost – but it could be cheaper to do it now rather than later before any future stamp duty hikes.