Stamp Duty Rules for Limited Companies

The­re are many things to think about if you want to set up a limi­ted lia­bi­li­ty com­pa­ny to mana­ge your pro­per­ties from purcha­se to lea­se. In many cases, this is a posi­ti­ve step, but everyone‘s situa­ti­on is dif­fe­rent – and many dif­fe­rent are­as of pri­va­te and com­mer­cial tax law are part of the dis­cus­sion! In this arti­cle, we explo­re what this means for homeow­ners loo­king to expand their port­fo­li­os and acqui­re addi­tio­nal pro­per­ties through limi­ted lia­bi­li­ty com­pa­nies. A house worth £300,000 that is not a pri­ma­ry resi­dence, which inclu­des second homes and invest­ment purcha­ses, the stamp duty bill would be £9,000 ins­tead of £14,000. Becau­se the three per cent secon­da­ry resi­dence sur­tax con­ti­nues to app­ly. Howe­ver, stan­dard rates of stamp duty do not app­ly. A limi­ted lia­bi­li­ty com­pa­ny pays the same rate of stamp duty as an indi­vi­du­al for non-resi­den­ti­al pro­per­ty. If you own the ren­tal pro­per­ty per­so­nal­ly, as of April 2020, you will no lon­ger be able to deduct mor­tga­ge inte­rest pay­ments as an eli­gi­ble expen­se with ren­tal inco­me on your self-assess­ment tax return. This is not the case for busi­nes­ses that own real esta­te, mea­ning that mor­tga­ge inte­rest pay­ments remain an eli­gi­ble busi­ness expen­se to redu­ce pro­fits and the­re­fo­re cor­po­ra­te inco­me tax. Accord­ing to Para­gon Bank, the­re has been a huge res­ur­gence in popu­la­ri­ty for inves­ting in brick and mor­tar – espe­cial­ly buy­ing for rent – by a limi­ted lia­bi­li­ty com­pa­ny. But it‘s important to con­si­der all the pros and cons of this befo­re making a com­mit­ment. Neit­her com­pa­nies nor share­hol­ders pay stamp duty or SDRs on the sale or trans­fer of shares. This inclu­des when com­pa­nies issue new shares and when share­hol­ders sell or dis­po­se of exis­ting shares they own.

Howe­ver, for non-resi­den­ti­al (or mixed-use) pro­per­ties purcha­sed from a restric­ted orga­niz­a­ti­on, the basic ELDS rate for non-resi­den­ti­al buil­dings app­lies. This means that in the­se cases the­re is no 3% surch­ar­ge. For all non-resi­den­ti­al or mixed-use pro­per­ties acqui­red by the Com­pa­ny, regu­lar non-resi­den­ti­al pri­ces app­ly. (For busi­nes­ses, the­re is no 3% surch­ar­ge on non-resi­den­ti­al real esta­te.) We dis­cus­sed the three dif­fe­rent types of stamp duty that limi­ted lia­bi­li­ty com­pa­nies have to pay in cer­tain situa­tions. The­se are stamp duty and SDRT on the trans­fer of shares and stamp duty on pro­per­ty tax on the purcha­se of resi­den­ti­al or com­mer­cial real esta­te through a com­pa­ny. Cur­r­ent­ly, stamp duty is the same for all indi­vi­du­als, whe­ther they are full-time owners or co-signers who are par­ents of a first-time buy­er. Howe­ver, the new rules, which come into for­ce on April 1, 2016, incre­a­se stamp duty by 3% for tho­se who alrea­dy own pro­per­ty in Eng­land and Wales (the rules for Scot­land are dif­fe­rent). Thus, if the purcha­sed pro­per­ty is a ren­tal or second home, the stamp duty is not 0%, 2%, 5%, 10% and 12%, the stamp duty is 3%, 5%, 8%, 13% and 15%. Three per­cent may not seem like much, but it makes a big dif­fe­rence in some circumstances.

Let‘s take the same examp­le of a £275,000 pro­per­ty. With the new stamp duty ren­tal purcha­se rules, a landlord who alrea­dy owns mul­ti­ple pro­per­ties would have to pay: The­re are several ways to avoid stamp duty as a limi­ted lia­bi­li­ty com­pa­ny when buy­ing a second home, which is main­ly faci­li­ta­ted by app­ly­ing for a refund. Added tips and a link to the page exp­lai­ning that the­re is a 3% surch­ar­ge on resi­den­ti­al pro­per­ties purcha­sed by busi­nes­ses for less than £500,000. This SDLT rate is also exempt for busi­nes­ses that purcha­se real esta­te for a real esta­te ren­tal com­pa­ny, real esta­te deve­lo­pers and con­ces­sionaires, pro­per­ties used by employees, a housing co-ope­ra­ti­ve, farms and finan­cial insti­tu­ti­ons that purcha­se real esta­te under loans. This was first argued in 2019 in a case – PN Bewley VS HMRC – whe­re a cou­p­le bought a bun­ga­low through their limi­ted lia­bi­li­ty com­pa­ny. After pre­sen­ting exten­si­ve evi­dence that the pro­per­ty was prac­ti­cal­ly obso­le­te (ren­de­ring the hig­her rate of deva­lued stamp duty super­fluous), the court ruled in their favour. Tog­e­ther, the­se chan­ges will make life more dif­fi­cult for landlords who buy to rent and act as indi­vi­du­als. But for some situa­tions, limi­ted lia­bi­li­ty com­pa­ny pack­a­ging could be a good solution.

Here‘s why landlords who buy to rent want to use a limi­ted lia­bi­li­ty com­pa­ny or spe­cial pur­po­se vehi­cle (SPV) for their ren­tal busi­ness. In gene­ral, it is alrea­dy pos­si­ble for a limi­ted lia­bi­li­ty com­pa­ny to obtain a ren­tal mor­tga­ge at 70–80% LTV, and most len­ders are able to do so. Once you‘ve set up the busi­ness, the rest of the pro­cess remains lar­ge­ly the same, with a few extra admi­nis­tra­ti­ve tasks. The depo­sit can be given or loaned to the com­pa­ny from your per­so­nal savings, and if you deci­de to sell the pro­per­ty in the future, the pro­fits will belong to the com­pa­ny. They can then be reinves­ted or with­drawn into new pro­per­ties and then taxed as per­so­nal income/capital gain. To boost the struggling real esta­te mar­ket, Chan­cellor Rishi Sunak announ­ced fur­ther stamp duty reli­ef on July 8, 2020. Pro­per­ty inves­tors who buy through limi­ted lia­bi­li­ty com­pa­nies will only pay the 3% surch­ar­ge on purcha­ses (over and abo­ve the £40,000 exemp­ti­on) and will no lon­ger have to pay the addi­tio­nal install­ments for all purcha­ses made befo­re 31/03/2021. Howe­ver, this still app­lies to tho­se buy­ing a pro­per­ty through a limi­ted lia­bi­li­ty com­pa­ny, whe­ther they are buy­ing for the first time or not – as first-time indi­vi­du­al buy­ers can bene­fit from SDLT relief.

Stamp duty for a limi­ted lia­bi­li­ty com­pa­ny is a com­plex area whe­re UK owners need to navi­ga­te care­ful­ly. Howe­ver, if you plan to trans­fer real esta­te from purcha­se to lea­se to a limi­ted lia­bi­li­ty com­pa­ny, you need to con­si­der the instal­la­ti­on cos­ts. For examp­le, you‘ll defi­ni­te­ly want to talk to a qua­li­fied accoun­tant to make sure your plans pile up. The­re would also be impli­ca­ti­ons for capi­tal gains tax and stamp duty. The­se two ele­ments com­bi­ned could make the move expen­si­ve enough to dis­cou­ra­ge an owner. Now let‘s look at the stamp duty rules for resi­den­ti­al and non-resi­den­ti­al real esta­te owned by cor­po­ra­ti­ons and cor­po­ra­ti­ons. The stamp duty win­dow gives owners the oppor­tu­ni­ty to trans­fer assets in their own name to limi­ted lia­bi­li­ty com­pa­nies, which they may not have done due to the impact of stamp duty. When it comes to making suc­cess­ful claims against stamp duty over­pay­ments on real esta­te invest­ments, you are in good hands. I am con­si­de­ring buy­ing a pro­per­ty through a limi­ted lia­bi­li­ty com­pa­ny, what are my next steps? Simi­lar to sim­ply buy­ing addi­tio­nal homes or buy­ing ren­tal pro­per­ty as an indi­vi­du­al, a limi­ted sta­tus busi­ness still pays the 3% extra for an apart­ment purcha­sed for over £40,000.

In 2015, the Chan­cellor announ­ced an addi­tio­nal stamp duty rate of 3% on the purcha­se of addi­tio­nal real esta­te, which was intro­du­ced in April 2016. This is desi­gned to attract second home buy­ers and real esta­te inves­tors in order to slow the growth of the buy-to-rent mar­ket. The 3% auto­ma­ti­cal­ly app­lies to any purcha­se from limi­ted lia­bi­li­ty com­pa­nies, as descri­bed abo­ve. The­se pri­ces inclu­de a 3% SDLT surch­ar­ge app­li­ca­ble to resi­den­ti­al pro­per­ties purcha­sed by a com­pa­ny for over £40,000. Non-resi­dent com­pa­nies pay an addi­tio­nal 2% surch­ar­ge on housing pri­ces and a 3% hig­her surch­ar­ge. The 3% stamp duty auto­ma­ti­cal­ly app­lies to any limi­ted lia­bi­li­ty com­pa­ny that buys a pro­per­ty. You can only claim stamp duty as a limi­ted lia­bi­li­ty com­pa­ny if you are enti­t­led to a refund. Non-resi­dent or non-resi­dent-con­trol­led busi­nes­ses pay a 2% surch­ar­ge on all pro­per­ties abo­ve the £40,000 purcha­se threshold.

Howe­ver, if you deci­de to buy a limi­ted capa­ci­ty lea­se, any money you earn could be sub­ject to cor­po­ra­te inco­me tax, which is cur­r­ent­ly 19%. Some com­pa­nies buy­ing resi­den­ti­al pro­per­ties over £500,000 will be char­ged a flat rate of 15% SDLT. This app­lies to busi­nes­ses, part­ners­hips and invest­ment pro­grams. This is qui­te a chal­len­ging area of stamp duty pro­per­ty tax – we recom­mend get­ting pro­fes­sio­nal advice about your spe­ci­fic situa­ti­on. To find an ans­wer to your spe­ci­fic situa­ti­on, plea­se read the rest of this arti­cle if you are con­si­de­ring buy­ing a pro­per­ty through a limi­ted lia­bi­li­ty com­pa­ny. That is, if a dwel­ling is purcha­sed by a limi­ted lia­bi­li­ty com­pa­ny that has a spe­ci­fic pur­po­se in mind, or by someo­ne who acts as trus­tee of a sett­le­ment for the fol­lowing rea­sons: If you buy or rent com­mer­cial (non-resi­den­ti­al) or “mixed-use” pro­per­ty through a limi­ted lia­bi­li­ty com­pa­ny, you will still have to pay stamp duty. The rules are dif­fe­rent when buy­ing pro­per­ty or land in Scot­land or Wales. In Scot­land, you pay tax on land and pro­per­ty transactions.

In Wales, you will pay pro­per­ty tran­sac­tion tax if the sale was com­ple­ted on or after April 1, 2018. Over the years, we have hel­ped thousands of peop­le – pri­va­te owners, second home owners and buy­ers through limi­ted sta­tus com­pa­nies – to build cases clai­ming money from HMRC. This can be done suc­cess­ful­ly by making fami­ly mem­bers share­hol­ders of the limi­ted lia­bi­li­ty com­pa­ny. Why should I buy invest­ment pro­per­ty through a limi­ted lia­bi­li­ty com­pa­ny? On the same sub­ject, com­pa­nies also pay a lower tax rate than indi­vi­du­als. Cor­po­ra­te inco­me tax is cur­r­ent­ly 20% and is expec­ted to fall to 18% by 2020. Final­ly, when a com­pa­ny reinvests its pro­fits, its tax bill is redu­ced, mea­ning you can use ren­tal inco­me to expand your port­fo­lio without incur­ring addi­tio­nal cos­ts. All of this means that inte­gra­ting a lea­se-to-buy port­fo­lio into a limi­ted lia­bi­li­ty com­pa­ny could be a good thing. Important tax chan­ges have been announ­ced for landlords who buy to rent and will impact various peop­le invol­ved in real esta­te and com­mer­cial real esta­te finan­cing. Many owners and owners of mul­ti­ple pro­per­ties will con­si­der forming a limi­ted lia­bi­li­ty com­pa­ny to cir­cum­vent poten­ti­al­ly pain­ful new tax laws – in this arti­cle, we‘ll look at why you might do it and some of the key con­si­de­ra­ti­ons if you think about it.