This is a big topic and won’t be covered all at once. For now I want to focus on one aspect that I keep seeing mentioned on socials and forums.
When you put your companies in to a limited company there are multiple tax considerations as well as dozens of commercial ones. Aside from whether putting your properties in to a company in the first is a good idea – which too many people seem to not care about checking – the big issues are capital gains tax (CGT) and stamp duty land tax (SDLT).
SDLT first because that is what I saw mentioned this morning by a talking head. You will often see mention that if your properties are held in a partnership there is no SDLT on transfer to a company. This is right. The issue is that very few people have properties in a partnership. Certainly not normal portfolio investors.
There seems to be a lot of confusion that jointly owned properties are held in partnership. They aren’t. They are jointly held investment assets.
Who cares? Well HMRC care for starters. In PIM1030 (read here) they open with:
“Where property is owned jointly with one or more other persons the way the rental income is taxed depends on whether the letting is carried on in partnership. Joint letting does not, of itself, make the activity a partnership.”
Pretty strong start. They go on to say:
“A partnership is unlikely to exist where the customer is one of a group of joint owners who merely let a property that they jointly own. On the other hand, there could be a partnership where the customer is one of a group of joint owners who:
- let the jointly owned property, and
- provide significant additional services in return for payment.”
That last line is interesting. What services could they possibly mean? What is significant? Well you don’t need to worry if all you do is rent out property as you have no other services at all!
Now then this is why you see a lot of people talk about limited liability partnerships (LLPs). These are definitely partnerships but are also very specific types of legal form. Curiously because of what they are the activity point on other services doesn’t exist. That said you can’t just say you are one. They need to be registered with companies house and you have to comply with a significant amount of extra compliance. They are also probably the only route to company via a partnership that many portfolio owners have.