A very common question is asked by potential buy-to-let landlords now that about Buying Property Through Limited Company as individual landlords are beginning to lose tax relief. There are various elements to consider before looking into potential tax planning and benefits and then setting up a limited company to purchase a buy-to-let property.
What is a Residential Property
As far as SDLT goes, residential property is any land or buildings that are either suitable as a dwelling or are used as a dwelling as well as those that are currently being altered so it can be used as a dwelling.
Should a property be considered as one of these things, it will be considered a residential property along with any land attached to it. Therefore, if a company purchases an individual dwelling that is worth over £1,500,000 will have a special 15% SDLT rate applied to it.
How to Reduce SDLT liability
Buying Property Through Limited Company in the UK will have to pay Stamp Duty Land Tax (SDLT) at the higher residential rates which can range from 3% up to 15%.
In some instances, it is possible to reduce the amount of SDLT that is payable. For transactions that involve mixed-use properties, the lower non-residential rates will be applied, and this is in place for properties that consist of residential and non-residential units.
If a single transaction consists of six or more residential properties then they can all be classed as on single, non-residential transaction which means that the lower non-residential rates will be applied.
If companies purchase several properties as part of one single deal or arrangement as well as a number of transactions between the same vendor and purchaser, then they are classed as linked SDLT transactions. As a result, the SDLT will be calculated based on the total consideration paid for the linked transaction. Therefore, Multiple Dwellings Relief will reduce the amount of SDLT that would usually be paid as it works out the average price per property. This is then multiplied by the number of dwellings. If any changes are made to the number of units within three years, there might be a further tax charge applied.
Residential or Non-Residential SDLT -Changing Use
If you purchase a residential property with the aim of converting it so that it becomes a commercial property, such as converting a house into a shop, then you will have to pay SDLT at the residential rates. If you purchase land or commercial property and then turn them into a residential property, this will often be treated as commercial property which means that the SDLT rate will be applicable. However, if a dwelling is constructed or property is converted then this will be residential property for SDLT purposes.
It is important that buyers and sellers understand the potential increase in the SDLT liability should they choose to begin work before a sale is made. The SDLT residential rates will also be applicable to the purchase of off-plan residential property.
When it comes to the type of transaction for SDLT purposes, it is important that you always take care as different facts can result in a change and that can have an impact on the amount of SDLT that is payable.
Apart from SDLT, you should also consider implications of ATED, Corporation Tax, Income tax, Administration Costs and Capital Gains Tax. It is vital to have a business plan in hand before moving forward. Therefore, it is important that you talk to our business advisors about Buying Property Through Limited Company as soon as possible to avoid any tax implications.