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, although this has become less beneficial following the increase in the full corporation tax rate to 25%.
In this situation, the property is owned by a company; the company receives the income and pays all the expenses including mortgage interest. It pays corporation tax at 25% on the profits, and also receives mortgage interest relief at 25%. 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 potential option to consider.
What taxes are payable if you gift an investment property?
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), HMRC will substitute market value for actual consideration when calculating the taxes due. This applies even if no consideration passes hands.
The gain arising will attract corporation tax at whatever rate of profits the company is making (25% if profits are £50,000 or more) and potentially capital gains tax at the rate of 24% (or 18% if a lower rate taxpayer) if property is being sold by an individual to a company.
Inheritance tax on property transfers in a company structure
There may also be inheritance tax implications, depending on the circumstances. Transferring property into a company can be treated as a potentially exempt transfer (PET) for IHT purposes. Provided the individual survives seven years after the transfer, the gift falls outside their estate entirely. In between this period, taper relief may apply if the donor dies between 3-7 years after making the gift.
In these situations, it is important to understand that HMRC will always substitute market value for actual consideration, especially where connected parties are involved, therefore it is important to have an independent property valuation to ensure the valuation used is accurate.
Importance of getting professional advice for property transfers
If you are planning to gift a property held in a company to mitigate IHT you may wish to review the way shares in the company are allocated. Depending on the type of property, it may be possible to apply agricultural property relief (APR) or business property relief (BPR).
Be aware that both these tax reliefs have been reduced since the 2025 Autumn Budget. From April 2025, only the first £1m of business assets attract full business property relief for IHT purposes, after which IHT applies at the rate of 20%.
It is always wise to seek professional advice when considering a property transfer between connected parties because these transactions are carefully reviewed by HMRC.
To get specialist property tax and IHT advice contact us via partners@rjp.co.uk.