Insights

Landlords have experienced lots of punitive tax measures in recent years which have made personally owning investment property, especially residential investment property, increasingly less tax efficient. Property does however remain a very popular investment and to try and resolve some of the tax implications, many people have started to opt for company ownership. In this situation, the property is owned by a company; the company receives the income and pays all  expenses including mortgage interest. The shareholders of the company can then be paid dividends out of profits if required. This can prove more tax efficient for property investors with a highly geared portfolio and is a good option to consider.

However, what happens when it comes to passing on property investments which are owned by a company? Can they be transferred to an individual and if so, what are the tax implications?

Firstly, there will be the capital gains considerations. If the property is owned by a company and transferred to an individual, from HMRC’s point of view the transaction is a sale. If the property is transferred to or from someone who is connected with the shareholder(s), even if no consideration passes hands, HMRC will substitute market value for actual consideration when calculating the tax due. The gain arising will attract corporation tax at the rate of 19% if being sold by a company to an individual, and capital gains tax at the rate of 28% (or 18% if a lower rate taxpayer) if being sold by an individual to a company. There may also be inheritance tax implications, depending on the circumstances.

For more advice on IHT review our range of blogs covering this important topic.