How to turn your property partnership into an SPV

If you’ve read the recent guest post from our friends at Ascendis, you might be wondering how you can unlock the benefits of partnership incorporation relief for yourself.

It’s not an easy process; but with a little time, money and effort, you can transform your joint property investments into a fully-fledged limited company.

Here’s how – but first, let’s go over the main topic at hand…

What is property partnership incorporation relief?

Essentially, if you and your partner’s joint buy-to-let property investments are judged by HMRC as a legitimate business, you can establish yourselves as a ‘property partnership’ and then incorporate the partnership by transferring your portfolio across to a new limited company.

By doing this, you’ll not only unlock the benefits of SPV limited company ownership – such as exemption from the section 24 tax changes and access to mortgage interest tax relief – but you may also qualify for ‘incorporation relief’.

This means you’ll avoid paying capital gains tax and stamp duty land tax on the transfer of the property portfolio.

Here’s what you’ll need to take advantage of partnership incorporation relief…

Seek expert advice from a tax specialist

Let’s start with the big one!

The rules surrounding partnership incorporation are quite complex; not to mention the restrictions of how HMRC defines a partnership in the first place.

To make sure incorporation is worth your time and money, it’s essential to speak to a tax expert. They’ll be able to help you stay in line with tax regulations and unlock the benefits of a property partnership

Ensure your property investment activities can be considered a business

HMRC won’t just grant incorporation relief to any old joint property owner. To be considered a legitimate partnership, you need to be running your property investments like a business.

As a very simplified example, if you own a large portfolio of properties and/or you’ve purchased a large number of properties in a relatively short timeframe, you’re more likely to qualify as a property partnership than a couple with just a few buy-to-lets in their name.

Again, you’re best off seeking advice from a tax specialist to ensure your investments match up to HMRC’s view of a partnership.

Transfer your entire portfolio to the new limited company

Once your partnership has been converted to an SPV limited company, ownership of all mortgaged properties in your portfolio must be transferred to the limited company.

This must be completed in one go – you can’t leave beneficial ownership of the properties in your own personal names, and you can’t stagger the switchover to one property at a time. All your properties must be owned in the limited company’s name; after this, your conveyancer will be able to finalise the title transfer with the land registry.

And make sure you do not transfer any rental income into the new partnership or SPV before the incorporation is complete; otherwise you’ll fall outside of lenders’ strict criteria and you’ll likely struggle to secure a loan for your portfolio.

Which brings us neatly onto the next point…

Pay your existing mortgages