FAQ’s – Beneficial Interest Company Trusts

by Mark Smith (Barrister-At-Law)

10:44 AM, 20th January 2016
About 4 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

George Harrison

21:00 PM, 5th April 2016
About 3 years ago

I would like more clarity on these trusts after reading Stephen Fay specialist property accountant in YPN magazine March 2016 where he states that these trusts do not work and can cause you major problems

Mark Alexander

1:00 AM, 6th April 2016
About 3 years ago

Reply to the comment left by "George Harrison" at "05/04/2016 - 21:00":

I had a huge amount of respect for Stephen Fay right up to the point he wrote that report.

Frankly he was talking out of his @r5e!

He was speculating in matters of law and lending policy, neither of which he is qualified in or insured to advise upon. Furthermore, I have spoken to some of his own clients who have confirmed that only a few years ago he had advised them that transferring beneficial interest was a good idea.

If you want legal advice, take it from somebody who is qualified and insured to provide it.

In matters of such importance use a specialist barrister for that advice and preferably a Chartered Tax Adviser as opposed to a more generalised accountant whose work is usually focuses on events in the past.
.

Abel Stronge

13:50 PM, 6th April 2016
About 3 years ago

I am actively considering the BICT option for my properties, all of which I own and manage directly (no partnership situation). As far as I can see it would work really well for me except for one thing which keeps bothering me. It is this: I would have to pay SDLT (as no partnership situation). Having paid a significant amount of SDLT is there anything to stop the Chancellor 'chasing his quarry' into the corporate structure? . As I see it the chancellor is determined to harvest taxes from landlords. Is it likely, unlikely, unthinkable, impossible.. that he then frames legislation to say 'NO mortgage interest relief on property income regardless of whether the income accrues to an individual or a corporate entity? Would I not then be in the same situation as before ? Am I missing something?

Mark Alexander

13:56 PM, 6th April 2016
About 3 years ago

As a sole trader you're a bit late for the party for BICT, it ended a week ago! If you'd have done it before 1st April then you'd be 3% better off on the value of your portfolio in terms of SDLT. As you say, partnerships are not affected in this way.

There are other strategies you may wish to consider too so please get in touch. As always in life, there are no guarantees. However, I think it is highly unlikely that any Chancellor would attack corporates or trust based structures but that's just my opinion.
.

Fred Flintstone

8:54 AM, 25th April 2016
About 3 years ago

is this strategy now a dead duck ?

Mark Smith (Barrister-At-Law)

9:57 AM, 25th April 2016
About 3 years ago

Far from it.

For those in partnership it is still very worthwhile, as the SDLT exemption still applies.

Sole traders may still find it worthwhile despite the SDLT hit if they are highly geared.

Fred Flintstone

10:17 AM, 25th April 2016
About 3 years ago

hi mark, thanks for the update. Has this been actually tested by HMRC yet ?

Mark Smith (Barrister-At-Law)

10:42 AM, 25th April 2016
About 3 years ago

Not as yet, no.

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

29% of landlords report tenant demand growing or booming Q3 2019

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