SDLT on Property Partnership Incorporation

The SDLT impact on incorporation will depend on how the property is held.

Transfer from an individual to a connected company

This is where the property is held directly by the individual and it’s transferred to a connected limited company.

• Where property is transferred to a connected company from an individual the deemed consideration for the transfer will be market value, it will not be possible to reduce your SDLT by under-value transferring of your property to the limited company.
• Transfer of a residential property to a limited company will be subject to the additional 3% surcharge (unless the property is valued under £40,000).
• Where the transaction includes property with both residential and non-residential use, the commercial rate of SDLT should apply to the entire transaction as there are no apportionment rules for SDLT.
• Where two or more properties are transferred, it may be possible to claim multiply dwellings relief (MDR), the relief calculates SDLT payable on average value of properties transferred.
• Where six or more properties are being transferred as part of a single transaction, commercial rates of SDLT should apply to the price payable, which is significantly lower than residential rates of SDLT.

​
Where a company acquires a single interest dwelling valued over £500,000 unless it qualifies for a business purpose, higher 15% rate of SDLT will apply to the transaction, which is 15% on the entire value of the transaction. Relief is available for buy to let properties held in a company for investment purposes however should the company cease to hold the properties for this purpose within three tiers of the date of transfer then further SDLT may become due.
 
Transfer from a partnership to a connected company
​
Where a property portfolio is transferred form a partnership to a connected company any actual consideration for the transaction is disregarded and the consideration for the transaction will be calculated according to the sum of lower proportions calculations.

The formula is MV x (100 – SLP) %

The sum of lower proportion (SLP) is calculated by reference to the partnership shares held by each partner that are connected for tax purposes to the acquiring company.

The sum of lower proportion calculation is looking at apportioning interest before and after.

With incorporation of the property partnership to a connected company if the proportionate interest before and the proportionate interest after (i.e. partner’s interest in the underlying assets remains the same through their equity in the company after the transfer) the transfer remains the same then the sum of lower proportionate calculation will bring about a nil chargeable consideration and nothing chargeable to SDLT.

In our next posts we will be looking at other implications of property incorporation such as ATED and we will also cover SDLT arrangements on the market that claim they can reduce SDLT payable on property transferred to a connected company.

If you have any questions about how SDLT will affect you or to find out more please contact us on ​​​[email protected].

Alex Bahamin ACCA MAAT

​
​About The Author;

Alex is a qualified chartered certified accountant, member of ACCA and AAT.

He is a property tax advisor, investor and has been helping landlords keep more of their wealth for themselves and their families.

With both technical expertise and personal experience of being a property investor himself, Alex can help other property investors save tax and structure their businesses in the most efficient way.