Incorporation of Rental Business



I own a few rental properties and due to recent restrictions on mortgage interest I am thinking of transferring the properties into a Limited Company, will I get incorporation relief?




It will be a question of whether your rental property portfolio is classed as a business or whether the rental properties are just held as investments. There must be a genuine business carried as this is one of the conditions to qualify for incorporation relief.


As there is no clear definition of business in the Incorporation Relief legislation this can be subjective. Following a recent case, HMRC now accepts that business has a wider meaning than a trade being carried on and that where an individual spends 20 hours a week or more carrying out “business” activities in relation to the properties then incorporation relief would be available. For example, if you collect your own rent and arrange repairs, etc, then you could prove that you do spend considerable time per week on the business, however, if you use management companies to look after your rental income then it would more than likely be the case that you are not carrying on business activities. Each case is different and we would advise that you examine the facts before claiming incorporation relief. There are other issues that need to be considered when transferring properties into a Limited Company. For example, stamp duty, the requirement to report annual accounts to Companies House and preparing a Corporation Tax return.


The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.


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