Limited Company - Landlord

System
System Posts: 100,537 🤖 Admin 🤖
edited June 9 in General accounting discussion
Hi there, can anyone help me discover what advantages there could be for a sole trader landlord converting to a limited company?

I assume they will have to effectively sell all the properties to the company and therefore realise horrendous capital gains on their self assessment. Would there be any way round this?

Any help much appreciated :)

Comments

  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Limited Company - Landlord

    This is a very broad question. The advantage of Limited Company status could bring with it tax advantages. I say "could" because nowadays the tax advantages of incorporation are slowly diminshing with the increased corporation tax rates coming in. Incorporation would now involve an element of tax planning for your client (ie. establisihing profit levels, tax savings thereon etc etc) to determine whether incorporation is beneficial or not. It is no longer simply a case of "yes or no" answers to this question. Limited liability also brings with it the protection against creditors pursuing the landlord for his personal assets in the event of the company being wound up (assuming the wind up is due to legitimate reasons and not the client trading to the detriment of creditors).

    In terms of capital gains then assuming your client did become Ltd. then he would have to sell the properties to the Ltd. Co. at market value which could well realise a chargeable gain. Unfortunately there isn't a way to avoid capital gains tax in this event, but there are ways to mitigate the tax. For example, if the properties are held jointly then the annual exemption applies to both parties who own the property - it isn't just given once. Incorporation relief may also reduce the chargeable gain and if your client has any available capital losses from previous disposals, these can also be utilised against any gains realised on the sale to the Ltd. Co. Incorporation relief is given if the business and its assets are transferred and it is transferred as a going concern and transferred in exchange for shares in the new company. The properties could also qualify for non business asset taper relief.

    For other potential reliefs available against Capital Gains Tax and for further details on CGT then check out HMRC website.

    Kind regards
    Steve
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Limited Company - Landlord

    . duplicate post
  • System
    System Posts: 100,537 🤖 Admin 🤖
    Re:Limited Company - Landlord


    Under normal circumstances i'm okay with the ltd v sole trader question it was really the CGT that stumped me and with such a cost i couldn't justify the benefits of transferring, but I am interested in the incorporation relief you mentioned which I haven't come across before so I will investigate this further.

    Thanks very much for your help

    Smokey

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