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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.
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
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.
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