£1.7 million landlord tax planning success

Earlier this year we helped a couple to restructure their property rental business in such a way that they will pay no personal tax whatsoever on the next £1.7 million they withdraw from their Limited Company.

This was achieved by arranging bridging facility to allow them to withdraw capital from their business of up to their acquisition costs before completing a sale of their business to their own new Limited Company.

The bridging financier agreed to transfer the facility to the Limited Company on incorporation and the couple retained the cash. However, they did not keep the cash for long! Bridging finance is expensive, so they decided to loan the funds they had borrowed from the bridging financier to their Limited Company in the form of a Directors Loan, which the company then used to repay the bridging finance it had just taken over.

OUTCOME

The new Limited Company owed £1.7 million to its Directors.

The company will repay the Directors Loans out of net sale proceeds of the company properties and/or from retained profits, without any personal tax consequences for the Directors.

If the couple had sold the properties whilst they were in their personal names they would have had to pay Capital Gains Tax on nearly £3.8 million of capital gains. However, if their company now sell the properties, corporation tax will be the only tax due. Best of all, the corporation tax will only apply to appreciation in the values of the properties since the incorporation. The capital gains made before the incorporation now sit in the company shares, not the properties, so for obvious reasons our clients never plan to transfer those shares. CGT ceases to apply after death, i.e. the point at which their children will inherit their shares.

We were happy, our clients were VERY happy.

There was also a way to deal with their inheritance tax problem, but that’s another article entirely (link).

The finance was provided at a very competitive rate by a private funder and was secured against undertakings. This meant that property was not required as security to support the funding, which also kept costs down.

This structure is perfectly acceptable to HMRC. In fact, they even give examples in their Business Income Tax Manuals. The problem for most professional advisers is that they are unable to arrange bridging finance against the security of undertakings. However, we have been doing this for years!

It could be you!

The key criteria in regards to whether the above structure could also apply to you is:-

• You spend at least 20 hours a week running your property rental portfolio business
• You are not the sole owner of the business
• You haven’t borrowed more than the purchase price of your entire property portfolio

Our services

We charge £400 for an initial landlord tax planning consultation process which includes:-

• Fact Find and satisfying HMRC’s ‘Know Your Customer’ requirements for anti-money-laundering compliance requirements
• Written report and recommendations including links to relevant HMRC manuals, legislation and case law where appropriate. This is prepared in conjunction with Cotswold Barristers who also comment of the legality of the suggestions and provide a quotation for any legal work associated with implementation of any recommended restructuring of the business. If instructed, Cotswold Barristers also adopt the recommendations made by Property118 Limited as their own professional advice.
• Video conference between the client, Cotswold Barristers, Property118 Limited and the introducing Accountant to serve as a Q&A session. Recording functionality is built into the software we use to enable all participants to retain a soft copy of the conference call.

The Property118 Tax team, in association with Cotswold Barristers, are specialists in advising on incorporation relief, but not all landlords qualify for reliefs to make a viable case to proceed down this path. Therefore, we also recommend a variety of other ownership structures.

All recommendations are bespoke, we do not believe in a ‘one-size-fits-all’ approach.

Our specialist landlord tax consultants provide guidance on the pros and cons of sole ownership, joint ownership, Partnerships, LLP’s, Limited Companies and Plc.’s as well as transitional relief available to switch between these various ownership structures. Our tax and legal team also provide guidance on non-resident status and benefits as well as property related business continuity, legacy and inheritance tax planning.

Our barristers each carry £10,000,000 of Professional Indemnity insurance and prepare each case as if it will be investigated by HMRC.

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