6 September 2016
Stamp Duty has always been the poor relation when it comes to considering whether to convert a residential property letting business into a limited company or not. It is generally a ‘tax’ that is last thought of, as accountants generally consider this to be a lawyer’s domain and vice versa for lawyers. With the introduction of the additional 3% Stamp Duty rate, it can be a costly ‘poor relation’!
The issue that has come across my desk a number of times is the question of whether converting a jointly owned residential property letting business to a limited company will suffer any Stamp Duty or will the full residential property Stamp Duty rates apply. Generally speaking, in these conversations with clients the question has come down to whether they are running a formal partnership business or whether it is just a joint holding in residential property, declared for tax purposes equally. For Income Tax purposes the difference in terms of tax liabilities is irrelevant but in terms of the actual business situation that is going on, it makes a world of difference; the first situation will potentially lead to a Stamp Duty rate of 0% on conversion, but the later will be an additional 3% on the normal rates.
Planning will therefore be the best option and sometimes to get the correct picture across to HMRC, planning may take a few years.
If you need advice on incorporation of your residential property business or any other aspect of your property portfolio then please contact your usual UHY contact.