Property Tax Transfer Warning
A Property Podcast episode warns against transferring property to a company at below-market price to minimize tax, stating "HMRC will calculate taxes based on market value, not the agreed sale price." The 9-minute episode advises "There is a reason that we don't take tax advice from estate agents" and recommends always consulting a qualified accountant before pursuing property transfer strategies.
- When an individual transfers property to a company they are "connected" with—such as their own—HMRC disregards the transaction price for Capital Gains Tax (CGT) purposes and instead uses the property's full market value to calculate the gain. - The Capital Gains Tax rate for residential property is 18% for basic rate taxpayers and 24% for higher-rate taxpayers on the calculated gain, after the annual exemption of £3,000. - The company acquiring the property is liable for Stamp Duty Land Tax (SDLT), which is also calculated based on the property's full market value at the time of transfer, not the discounted price paid. - If the property portfolio is run as a genuine business, the owner may be eligible for "Incorporation Relief," which can defer the Capital Gains Tax payment until the shares in the company are sold. - Transferring the property into a company can be considered a "potentially exempt transfer" for Inheritance Tax (IHT). If the original owner survives for seven years after the transfer, the value of the property may fall outside of their estate for IHT purposes. - Once inside the company, rental profits are subject to Corporation Tax (up to 25%), and any profit from a future sale of the property by the company will also be liable for Corporation Tax. - The definition of a "connected person" is broad and includes not only the individual's own company but also direct relatives like parents, children, and siblings, triggering the market value rule for transactions with them as well.
