You are the director and shareholder of two limited companies, and you want to move a property from one to the other. It feels like an internal reorganisation. It is not. Unless the two companies are in a formal group, the transfer is a sale between two connected but unrelated taxpayers, and it is taxed accordingly.
This is the single most expensive misunderstanding in owner-managed property structures. Here is how it actually works.
For SDLT group relief under Schedule 7 to the Finance Act 2003, two companies are in the same group only where one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company. The test looks at share capital, entitlement to distributable profits and entitlement to assets on a winding up.
Two companies owned personally by the same individual satisfy none of that. The shareholder is a person, not a company. So there is no group, and no group relief. The same point defeats the corporation tax no gain, no loss rule in section 171 of the Taxation of Chargeable Gains Act 1992, which also requires a 75% group.
If a genuine group structure is what you need, it has to be built — typically by inserting a holding company above both companies through a share-for-share exchange, which has its own tax consequences and needs to be done before, not during, the property transfer. Be aware too that SDLT group relief can be clawed back under Schedule 7 if the transferee leaves the group within three years.
Section 53 of the Finance Act 2003 applies to transfers to a company connected with the seller, and companies under common control are connected. SDLT is therefore charged on the open market value of the property, regardless of the figure recorded on the transfer or whether any money moves at all.
On residential property the transferee company will normally pay the standard rates plus the 5% higher rate surcharge, and a flat 17% can apply to a single dwelling worth more than £500,000 unless a relief such as the property rental business relief is available. Commercial and mixed-use property is charged at the non-residential rates: 0% to £150,000, 2% to £250,000 and 5% above, with no surcharge.
Two practical points. The SDLT return is due, with payment, within 14 days of completion. And where VAT is charged on the transfer, SDLT is calculated on the VAT-inclusive figure.
The transferor company is treated as disposing of the property at market value, because the parties are connected. The resulting chargeable gain falls into corporation tax at 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between. Indexation allowance is available only up to December 2017, so on property held for a long time the taxable gain can be far larger than owners expect.
If the company is a developer or trader and the property is stock rather than an investment, the profit is trading income rather than a chargeable gain — still taxable, but computed differently.
Most residential transfers are exempt or outside the scope. Commercial property is different. If the transferor has opted to tax, VAT at 20% is chargeable on the sale unless the transaction qualifies as a transfer of a going concern. For TOGC treatment on an opted property the buyer must itself opt to tax and notify HMRC by the relevant date, and the seller must satisfy itself that this has been done. Get it wrong and you have an unexpected 20% VAT charge, plus the extra SDLT that sits on top of it. Capital goods scheme adjustments may also follow the property.
If the property is charged, the existing lender must be repaid or must consent, and any early repayment charge crystallises. The acquiring company will usually need its own facility, supported by a debenture and personal guarantees. Where the consideration is left outstanding as an intercompany loan, document it properly with terms and interest, and take advice on the loan relationship rules and on any director's loan account implications. A new charge must be registered at Companies House within 21 days of creation or it is void against a liquidator or administrator.
Where the commercial aim is to move value rather than the specific asset, a sale of the shares in the company holding the property attracts stamp duty on shares at 0.5% rather than SDLT at up to 17%. The trade-off is that the buyer inherits the company's entire history, so it only works where the purchaser is willing to take that risk — and where you control both sides, it may be exactly the right answer. Inserting a holding company to create a real group first is the other route. And sometimes the honest conclusion is that the frictional cost exceeds the benefit and the property should stay where it is.
This is general information rather than tax or legal advice; take specialist advice on your own structure before you commit. If you need an independent market valuation to support an intra-company transfer, request a valuation from Giles Real Estates.