FAQ’s – Beneficial Interest Company Trusts

by Mark Smith (Barrister-At-Law)

10:44 AM, 20th January 2016
About 3 years ago

FAQ’s – Beneficial Interest Company Trusts

Make Text Bigger
FAQ’s – Beneficial Interest Company Trusts

Beneficial Interest Company Trusts enable landlords to incorporate their rental property businesses without the need to transfer legal ownership to the company, hence there is no requirement to disturb existing mortgage and financing facilities. FAQ's - Beneficial Interest Company Trusts

What is the purpose of this strategy?

To optimise the tax position of your rental property business in respect of retained profits and to ensure that the effects of the stepped removal of tax relief on BTL finance costs for individual landlords is mitigated, whilst taking advantage of CGT relief on incorporation and without the expense of changing your financing arrangements.

How does it work?

We separate the legal title (which is where the finance attaches) from the beneficial interest (where the tax attaches) by use of the trust deed and a new company in your name. We then hand it all over to your accountant to claim section 162 incorporation relief to mitigate Capital Gains Tax which would otherwise be payable. Your accountant will be able to tell you if your tax position will be improved by the strategy.

Who is behind it?

Property118.com recognised the problem, Cotswold Barristers devised the legal solution and together they had it checked and approved by a leading tax QC.

Can I transfer less than 100% of the beneficial interests of my entire property portfolio?

Yes but this is not recommended as it will exclude you from being able to claim incorporation relief, which may well be necessary to mitigate Capital Gains Tax that would otherwise become payable.

What happens when I want to sell the property?

It is recommended that an EGM is called and that minutes are produced to document the agreement. 100% of the net sale proceeds will need to be transferred to the Limited Company.

Can I still refinance after this strategy has been implemented?

Yes, there are two options.

You could apply for the new mortgage in exactly the same way as if the Beneficial Interest Company Trust transaction had never occurred. Any professional fees associated with the refinancing would be paid by your Limited Company and 100% of the net proceeds of the refinancing must be transferred to your Limited Company bank account. It is recommended that an EGM is called and that minutes are produced to document the fact that the Limited Company has requested you to refinance and that you have agreed.

The cleanest way to refinance is to transfer the legal title into the company and refinance in the company name. No additional SDLT or CGT becomes payable because this is all accounted for when 100% of beneficial interests in property are transferred along with the business to the company at the point of incorporation.

Is Stamp Duty Payable?

All individuals would have to SDLT (LBTT in Scotland) when transferring properties to a company. However, some partnerships qualify for exemptions. The legislation is FA 2003, Schedule 15 Land and Buildings. Therefore, to put yourself in the best possible position to qualify for these exemptions you might consider forming a partnership with a view to incorporating that at a later date. This is possible, at a reasonable cost, by selling say a small percentage of the beneficial interest in your properties to a spouse, friend or family member using a declaration of trust and then notifying HMRC of your new partnership status. For more detail click here

How long does it take?

A Beneficial Interest Company Trust can be dealt with in a matter of days from the giving of instructions.

Does my lender have to know?

Only if your mortgage conditions specifically require it. The trust can be registered at the Land Registry, but it is not compulsory.

How are future mortgage payments made?

A variety of options will be explained by Cotswold Barristers when you instruct us.

What if my mortgage lender objects to the arrangement?

Your mortgage lender would have to prove that entering into the arrangement is in breach of their mortgage conditions in order to raise a valid objection. If you would like us to check your mortgage terms and conditions we are happy to do so for a fee of £50 per mortgage plus VAT.

How can I be certain that I will qualify for incorporation relief?

This is a matter for your accountant to advise you on. HMRC has criteria which has been tested in Court. Cotswold Barristers will be happy to discuss the relevant case law with your accountant if required. Also see this page.

How much does it cost to set up a Beneficial Interest Company Trust?

Fees are on a sliding scale based on portfolio size, and are subject to VAT.

£6,995 up to 10 Properties

£7,995 for 11-20 properties

£8,995 for 21-30 properties

£9,995 for 31-40 properties

£10,995 for 41-50 properties

£11,995 for 51-75 properties

£12,995 for 76 or more properties

Minimising professional advice fees

Before you decide to seek professional advice we recommend you to do some further preparation. This will save you a lot of time and money and give you a far clearer understanding of the options available to you. We commissioned a team of experts to produce software which serves as both a Fact Find for professional advisers, a full in depth analysis of the problems, what the position might otherwise look like based on a variety of of restructuring alternatives and the cost of implementation of the restructuring possibilities. This software is available for purchase at a cost of £97 inclusive of VAT.

Please note the software is copyright protected so you must not give or sell the download link to third parties after you have purchased it and you must not use it as a consultancy tool to advise other people without our express written permission.

Also see these related articles:-

How does s162 incorporation relief work for landlords?

Beneficial Interest Company Trusts – Avoid Refinancing When Incorporating



Comments

robert gillies

0:35 AM, 26th January 2016
About 3 years ago

Can Cotswold Barristers set up a beneficial interest company trust for scottish properties to be added to a scottish company?

Mark Smith (Barrister-At-Law)

9:04 AM, 26th January 2016
About 3 years ago

Hi Robert,

I'm afraid we are not authorised to practise in Scotland, very sorry.

Tony Hawes

16:36 PM, 19th February 2016
About 3 years ago

I'm interested in getting the terms and conditions reviewed for a couple of my lenders to see if this might work for me. Who do I get in touch with? Thanks

Mark Alexander

8:52 AM, 22nd March 2016
About 3 years ago

Reply to the comment left by "Mark Smith (Barrister-At-Law)" at "26/01/2016 - 09:04":

I understand that you're speaking to a QC in Scotland this Friday Mark with a view to extending BICT into Scotland.

Please update this thread with any further news on that.
.

Mark Smith (Barrister-At-Law)

8:58 AM, 22nd March 2016
About 3 years ago

Will do.

Paul McCready

10:04 AM, 22nd March 2016
About 3 years ago

Good Morning Mark

I have a modest portfolio consisting of 6 licensed HMO's (39 rooms)
and 5 single ASTs (apartment's and houses)

The value is around 1.8 million and I have mortgage's of around 1.3 million.
I have been investing since 2007 but only got into HMO's 3 years ago.

I am not incorporated but am very keen to go with the beneficial interest company trust .

I would like to pursue this this option sooner rather than later.
Please can you advise how to progress this.

My Accountant is ATT ATII qualified.

I also use a very experienced and pro active broker who I would like to keep in the loop going forward with this strategy.

What is the best way for me to progress this with you?

Kindest regards
Paul

Mark Smith (Barrister-At-Law)

10:14 AM, 22nd March 2016
About 3 years ago

Paul, please call Chambers for a discussion with no obligation.

01242 639454

Paul McCready

10:46 AM, 22nd March 2016
About 3 years ago

Reply to the comment left by "Mark Smith (Barrister-At-Law)" at "22/03/2016 - 10:14":

Thank you very much.
I will make the call around midday.
On a train from the north west to London and signal intermittent.

James Redfern

12:48 PM, 22nd March 2016
About 3 years ago

Reply to the comment left by "Mark Smith (Barrister-At-Law)" at "22/03/2016 - 08:58":

Good afternoon

I am a Landlord based in Scotland with a modest property portfolio. My partner and I are very interested in setting up a beneficial interest company trust. I note from posts that Cotswold Barristers are not authorised to practise in Scotland and that you were speaking to a QC in Scotland.

I would be grateful if you could keep me advised of progress in extending BICTs to Scotland.

Kind Regards
James

1 2

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Croydon Council Support S21 Ban

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More