Transferring Buy-to-Let Flats to a Company: SDLT and CGT
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Can you transfer rental flats into a limited company and defer CGT?
Introduction
Many landlords ask whether moving personally owned rental property into a limited company can improve the tax position. The usual attraction is that a company structure may help with future income tax planning or borrowing, but the transfer itself can trigger Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT).
Where the owner wants to incorporate a long-running property letting activity, a common question is whether CGT can be deferred under incorporation relief while managing the SDLT cost. The answer depends on the legal structure, the way the lettings are run, whether there is any mortgage debt, and whether the activity is strong enough to count as a business for tax purposes.
The Question
A landlord owns two flats in the same converted building. The flats were originally created from one dwelling. The owner lived in the original property before conversion and has since let the two flats for many years. There is a commercial mortgage secured on the building.
The landlord is considering transferring the flats to a company they control. The main concern is whether CGT can be deferred on incorporation, and what SDLT would be payable by the company on the transfer.
Nick’s Explanation
Nick’s core point was that SDLT and CGT must be analysed separately.
On SDLT, his explanation was that a transfer of the flats to the owner’s own company would normally be taxed by reference to market value under section 53 Finance Act 2003, because the transfer is to a connected company. He also noted that if the company takes over mortgage debt, that debt counts as chargeable consideration under Schedule 4 paragraph 8 Finance Act 2003.
He further explained that, because both flats are transferred to the same company as part of the same overall arrangement, HMRC are likely to treat them as linked transactions under section 108 Finance Act 2003. That means SDLT is considered on the combined value rather than looking at each flat in isolation.
On CGT, Nick noted that any possible deferral would usually depend on incorporation relief under section 162 Taxation of Chargeable Gains Act 1992. In broad terms, that relief may apply if a genuine property lettings business, together with the whole business assets other than cash, is transferred to a company in exchange for shares. He also pointed out that this is a factual test: ordinary passive investment activity may not be enough.
He also highlighted an important practical issue: if the owner receives something other than shares, such as debt being taken over or a director’s loan being created, that can prevent full deferral of the gain.
The Law
The main SDLT rules are found in Finance Act 2003.
Section 53 Finance Act 2003 applies a market value rule where property is transferred to a connected company. In practice, this means SDLT is usually charged by reference to market value even if the transfer is made for little or no cash.
Schedule 4 paragraph 8 Finance Act 2003 provides that the assumption of existing debt can count as chargeable consideration for SDLT.
Section 108 Finance Act 2003 deals with linked transactions. If multiple property transfers form part of a single scheme, arrangement or series of transactions between the same buyer and seller, SDLT is calculated by looking at the total consideration.
Schedule 4ZA Finance Act 2003 contains the higher rates for additional dwellings. A company acquiring residential property will commonly fall within the higher-rate regime.
Schedule 15 Finance Act 2003 contains special SDLT rules for partnerships. In some cases, those rules can materially alter the SDLT result on incorporation, but only where there is a genuine partnership for tax purposes.
The main CGT rule is section 162 Taxation of Chargeable Gains Act 1992.
Section 162 TCGA 1992 may allow incorporation relief where a business is transferred to a company as a going concern, together with the whole of its assets other than cash, and the consideration consists wholly or partly of shares issued by the company to the transferor.
The key legal difficulty is that not every property rental activity is a “business” for section 162 purposes in the required sense. Whether the activity is sufficient depends on the level of activity, organisation and management involved.
Analysis
The first step is to separate the SDLT position from the CGT position.
For SDLT, a transfer to the landlord’s own company is not treated like a sale to an unconnected third party. If the company is connected to the owner, section 53 Finance Act 2003 generally substitutes market value. So even if the company pays no cash, SDLT can still arise on the full market value basis.
In a case involving two flats in one converted building, transferred at the same time to the same company, HMRC are likely to view the transfers as linked under section 108. That means the SDLT calculation is based on the combined total rather than each flat being assessed separately for rate purposes.
If there is a commercial mortgage over the property and the company takes over responsibility for that debt, Schedule 4 paragraph 8 says the assumed debt counts as chargeable consideration. In many real cases, the debt position is central to the SDLT analysis and the refinancing documents need to be checked carefully.
Because the purchaser is a company acquiring dwellings, the higher residential rates under Schedule 4ZA will usually apply. That can produce a substantial SDLT charge.
The next step is CGT. A transfer of investment property into a company would normally be a disposal for CGT purposes. However, section 162 TCGA 1992 may defer the gain if the transfer amounts to the incorporation of a business and the statutory conditions are met.
The issue is whether a long-running property letting operation is truly a business for section 162. Duration alone is not enough. Owning and letting residential property can still be treated as investment activity rather than a business of the kind needed for incorporation relief. What matters is the overall level of activity: management time, services provided, the extent of day-to-day involvement, systems, records, staffing and the general commercial organisation of the operation.
If section 162 does apply, the gain is usually rolled into the base cost of the shares received from the company. That means the CGT is deferred rather than eliminated.
But there is an important structural point. Full relief usually works best where the consideration is shares. If the company also assumes liabilities or provides non-share consideration, the gain may be only partly deferred. In a mortgaged property incorporation, this often becomes the hardest part of the planning.
Another point sometimes raised is whether partnership rules could help on SDLT. That is possible only where there is a genuine property partnership, not just joint ownership or informal family involvement. Evidence such as partnership accounts, profit-sharing arrangements, joint decision-making and a real business structure would matter. If the properties are simply owned personally by one individual, Schedule 15 is unlikely to assist.
This is not an “uninhabitable” or “not suitable for use” scenario, but readers often ask whether a converted or altered dwelling can avoid residential SDLT treatment. The courts now apply a relatively high threshold. Following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, a property must be in genuinely serious condition before it will fall outside the normal residential rules on the basis that it is not suitable for use as a dwelling.
Outcome
The practical answer is that CGT deferral may be possible, but only if the lettings amount to a qualifying business for section 162 TCGA 1992 and the incorporation is structured properly.
At the same time, SDLT is likely to be a real cost. If the flats are transferred to a connected company, SDLT will usually be charged on market value, the two flat transfers are likely to be linked, mortgage debt taken on by the company can count as consideration, and the higher residential rates will usually apply.
So the landlord may be able to defer CGT, but should not assume that incorporation produces an SDLT-efficient result.
Practical Steps
Establish the exact ownership position. Confirm whether the properties are owned personally, jointly, or through any genuine partnership arrangement.
Review the mortgage documents. Check how much debt is secured, whether the company would assume it, and whether refinancing is required.
Value the flats properly. SDLT will often turn on market value where the company is connected to the transferor.
Assess whether the lettings amount to a business for section 162 TCGA 1992. Gather evidence of management activity, time spent, services provided, books and records, and the overall scale of operations.
Consider the incorporation structure carefully. If non-share consideration is introduced, full CGT deferral may not be available.
Check whether any partnership analysis is realistically available before assuming Schedule 15 Finance Act 2003 can reduce SDLT.
Obtain coordinated SDLT and CGT advice before any transfer documents are signed or any refinancing is arranged.
Conclusion
Transferring rental flats into a limited company can sometimes defer CGT through incorporation relief, but only where the statutory conditions are genuinely met. SDLT is often the harder obstacle, especially where market value, linked transactions, mortgage debt and higher residential rates all apply. The right answer depends on the detailed facts and the structure used.
Legal References Used
Finance Act 2003, section 53
Finance Act 2003, section 108
Finance Act 2003, Schedule 4 paragraph 8
Finance Act 2003, Schedule 4ZA
Finance Act 2003, Schedule 15
Taxation of Chargeable Gains Act 1992, section 162
Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799
This page was last updated on 22 March 2026.
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