With more and more investors deciding to buy property through a limited company, many established landlords are considering transferring their existing portfolios from personal ownership into a company structure.

It’s important to remember that transferring personally held properties to a limited company is a sale and purchase transaction. It’s therefore subject to the usual taxes and costs associated with purchasing property, including SDLT, CGT, legal and conveyancing costs and early redemption and arrangement fees for any mortgages.

Portfolio incorporation, when done by a specialist, can be worthwhile when considering the long-term savings against the initial costs. However, landlords with smaller portfolios often find it’s more financially viable to retain their personally held properties, using a limited company to purchase additional properties.

Tax trap: Using risky LLP schemes to avoid tax

Landlords have recently been issued with a 

 over using hybrid LLP business model schemes when incorporating their portfolios. 

 into a tax scheme promoter called “Less Tax 4 Landlords” details that the hybrid partnership scheme was promoted as a way to avoid paying tax on property income, reduce Capital Gains Tax and Inheritance Tax. The scheme was set up to allow individual or joint property landlords to transfer their properties to a limited liability partnership (LLP) with a corporate member (a limited company). 

HMRC’s view is that certain schemes do not work and people who use the arrangements may have to pay more than the tax they tried to avoid, plus interest and penalties.  

 into a scheme from a firm called “Property118” involving a trust/company structure to reduce incorporation costs and tax. The investigation claimed this structure risks mortgage defaults and could land investors with an increased tax bill.

How to spot a risky incorporation scheme

Remember: when a scheme is investigated and uncovered by HMRC, 

you are liable for taxes and penalties, not the scheme promoter

. Even if they offer you a guarantee, the liability will not transfer to them. HMRC have limited power and resources to shut down scheme promoters, therefore they target scheme users to recoup lost tax revenues. In the event of an investigation, you will have to repay taxes to HMRC, and your scheme promoter will keep your fees!

Professional opinion

“We don’t promote these kinds of schemes and advise clients to stay far away from any tax avoidance-related practices. Our advice is always to make sure you speak to a qualified property tax advisor - not a salesperson - and an incorporation specialist before making decisions about incorporations or the effective use of LLP’s. Incorporation of an existing portfolio is complex and property businesses are often worth over six figures, therefore it’s definitely worthwhile getting proper tax advice from qualified individuals. 

“The problem with the hybrid partnership is it tries to get the best of both worlds: keeping the mortgages in the personal name, but getting taxed as a limited company. By saying that the business is run as a limited company without transferring the mortgages to the company - and also without informing the mortgage provider breaks both the terms of the mortgage and potentially HMRC’s rules for section 162 incorporation relief. This means the structure isn’t fit for purpose and HMRC has the power to go back and claw back tax with added interest and penalties. 

“It’s important to clarify that incorporating a portfolio is fine in itself - however, using complex, and often multi-layered schemes to get out of paying tax is tax avoidance. We advise clients looking to incorporate to get tax advice for their specific scenario to see if they are eligible for tax relief and if so how much is eligible to be claimed at the point of incorporation. If incorporation is the right choice for your circumstances, incorporating an existing portfolio is absolutely something they can do but it needs to be handled by an incorporation specialist. 

“Limited companies are still a good choice for many investors to be tax efficient. If incorporation isn’t right for you, you can still consider buying your next property in a limited company or selling and reinvesting the profits through a limited company.” 

Which Provestor service is right for you?

Chapter 5 summary

In summary, when considering incorporating an existing portfolio, be wary of schemes promising tax savings that sound too good to be true. 

If you think portfolio incorporation is the right option for you, we highly recommend 

 with our team to discuss this specialist and complex topic in more detail.

Whenever you’re ready, here are 4 ways we can help you start and manage your buy-to-let limited company:

Are you aware of the risks of incorporation?

Are you fully aware of the risks of portfolio incorporation?

Are you maximising your tax allowances?

Are you making the most of your tax allowances?

Does your share structure fit your strategy?

Are your company documents fit for purpose?

Checklist and next steps

Limited company setup checklist and next steps for investors

The ‘DIY' tax trap

From starting out to year end accounts, Provestor's award winning services are built for landlords.

Get on-demand advice from property tax advisors. Instant online booking

Low cost limited company start up service, designed for property investors

Year end accounts and tax returns for limited companies, from £14.99 per month.

A comprehensive accountancy service from our team of expert property tax accountants.

No matter how you prefer to invest in property, Provestor has the expertise you need

Get started in property investment with our expert-authored resources

Get day to day help and support with our accounting app & service

Upskill with our free expert-authored guides to property tax

Limited company, CGT and stamp duty calculators

Read the latest updates and insights from our property tax experts

Nadeem & James explore tax topics in this must-watch show

Provestor is part of an experienced, innovative and award-winning accountancy group

Who we help

Help & advice

About

Are you fully aware of the risks of portfolio incorporation?

Guide navigation

Was this helpful?

Thanks for your feedback.

Guide navigation

Get expert tax tips straight to your inbox