How to transfer property to a limited company: essential legal steps

While owning properties through a company can offer tax and legal benefits, it also comes with complexities that require careful attention. 

If you have any questions or need help with property transactions, our friendly team is here to assist. Contact our solicitors.

Why transfer property to a limited company?

One of the primary reasons for transferring property to a limited company is the potential for tax savings. For landlords and property investors, owning property through a limited company can provide benefits such as lower corporation tax rates and the ability to offset interest payments against rental income, which is no longer fully available under personal ownership. 

Legal aspects of transferring property

While the tax benefits are enticing, before transferring property into a limited company, it's essential to understand the key legal considerations that will guide the process.

1. Transfer of title and ownership: The first legal step in transferring property to a limited company is the transfer of title. This process involves legally changing the ownership of the property from the individual to the company, which must be registered with HM Land Registry. Ensuring the transfer is executed correctly is crucial, as errors could lead to significant delays or legal challenges.
    
2. Stamp duty land tax (SDLT): One of the most critical legal considerations is the potential liability for stamp duty land tax (SDLT). When transferring property to a limited company, SDLT is usually payable and calculated based on the property's market value. However, certain reliefs or exemptions might be available, particularly if the property is part of a partnership or multiple dwellings are being transferred. Seeking professional advice to explore these options is essential. Directors of companies purchasing property through limited companies should also be aware that the company is liable for stamp duty at the additional rate.
    
3. Mortgage considerations: If the property is subject to an existing mortgage, transferring it to a limited company can be complex. Most lenders will require the mortgage to be redeemed or transferred to a new loan in the company's name. This process often involves additional legal work, such as obtaining consent from the lender and ensuring the company meets the lender's borrowing criteria. It's also important to consider the potential impact on mortgage rates and terms, as they may differ for corporate borrowers. The existing directors are also likely to have to enter into personal guarantees as required by the lender. Some companies may consider bridging finance, especially if purchasing the property as a short-term investment (e.g. a renovation).
    
4. Capital gains tax (CGT): Transferring property to a limited company may trigger a capital gains tax (CGT) liability, calculated on the property's increased value since it was acquired. Although CGT can be deferred in some cases, such as when the transfer qualifies as a gift or if the property is being incorporated as part of a business, it is a significant consideration that must be addressed in the planning stages. We recommend seeking specialised accountancy advice on this point.

Steps to legally transfer property

Once you've reviewed the legal requirements, the next step is to follow the appropriate procedures to ensure a smooth transfer of ownership.

1. Professional valuation: Start with a property valuation by a suitably qualified RICS surveyor to establish its current market value. This step is as critical as it is mandatory, as this value will be used to determine any tax liabilities, such as SDLT and CGT, and to set the appropriate price for the transfer. Your lender may arrange this step as a part of their offer.
    
2. Conveyancing documentation: Engage a solicitor to draft the necessary legal documents, including the transfer deed and any related agreements. These documents must accurately reflect the terms of the transfer and ensure compliance with all relevant legal requirements. When you appoint a firm experienced in both corporate law and conveyancing, these various requirements can all be fulfilled, and any idiosyncrasies in the transaction can be handled efficiently.
    
3. Corporate documentation: Under the Companies Act 2006 requires that board minutes be drafted proving the transaction and any mortgage finance. These must be kept on record at the company's registered office for 10 years. It is also imperative for the solicitor to review the company's articles to ensure that the company and its directors are able to legally enter into the transaction following the High Court ruling in Hashmi v Lorimer-Wing 2022.
    
4. Loan agreement: In most instances of property transfers to limited companies, cash rarely exchanges hands as the proprietor(s) of the property are commonly the director(s) of the company. However, you should be aware that you cannot "gift" property to a company. It is highly recommended that a loan agreement is drafted to show that the property is transferred for full value. A well-drafted loan agreement will protect your investment should the company run into any financial difficulties.
    
5. Mortgage arrangement: If there is an existing mortgage, liaise with the lender to arrange for the mortgage to be transferred or redeemed. This may involve renegotiating terms or seeking a new lender willing to finance the property under the company's ownership. With a company purchase, many lenders will impose special conditions on their offers. Experienced corporate solicitors are able to abide by any conditions that arise and provide advice specifically for each transaction.
    
6. Tax filing: Ensure all relevant taxes, including SDLT and any applicable CGT, are filed and paid in accordance with HMRC requirements. Proper tax planning can help mitigate these liabilities, so working closely with a tax adviser is advisable.
    
7. HM Land Registry and Companies House The transfer of ownership must be registered with HM Land Registry. This step officially transfers the property title to the limited company and is the final part of the legal process. When purchasing with mortgage finance, the mortgage must be registered with Companies House within 21 days of completion.

Ongoing requirements and considerations for owning property through a limited company

After the transfer is complete, there are several ongoing responsibilities and considerations that come with managing property under a company structure.

1. Tenancy requirements: Purchasing the property is only the first element of the two-stage process of property ownership. Many additional things will need to be considered when owning a tenanted property. Upon receiving the property, the company will have been required to issue or obtain the following:
    
   • A new tenancy agreement confirming the change of landlord and any additional amendments.
      
   • An updated Deposit Protection Certificate confirming the company is now the registered landlord.
      
   • If applicable, an HMO Licence.
      
   • Updated gas safety records which cover the whole of the tenant's span of residence at the property.
      
   • The How to Rent Guide that was current at the time the tenant took possession.
      
   • The property's Energy Performance Certificate.
      
2. Property management: Additionally, the company will need to decide whether they will manage the property themselves or appoint a managing agent to collect the ground rent and service charges, receive notices and handle the day-to-day upkeep of the property.
    
3. Remortgaging in the future: There is also the potential for further mortgage funding on properties in the future. It is especially important to consider this if the company had obtained a bridging loan to initially purchase the property and wish to move away from the more restrictive conditions and harsher interest rates usually imposed by these loans.

Conclusion: Seek professional advice

Transferring property to a limited company involves navigating a complex web of legal and tax considerations. While the potential benefits are significant, the process requires careful planning and professional advice to execute correctly.

Our experienced solicitors specialise in property law and are here to guide you through every step of the transfer, ensuring your interests are protected and your transaction is legally sound.

We have solicitors in London, Bath, Brighton, Eastbourne, Hastings and Ulverston, assisting with property transactions across England and Wales.