Splitting into leaseholds on freehold building to refinance

Splitting into leaseholds on freehold building to refinance

14:30 PM, 7th July 2020, About 3 years ago 10

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I have a freehold building which was developed into several flats. I am looking hold on to them to rent, but would like to split into leaseholds as the mortgage rates are more competitive (the difference in rates have reduced over the last couple of years but the financing cost have gone up hugely) and it would also allow greater flexibility.

The issue initially is you can’t own the freehold and the leasehold.

What strategies are there for this avoiding paying large amounts of tax as sole traders which don’t involve having to get married? Or as a Limited company.

Many thanks


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11:24 AM, 8th July 2020, About 3 years ago

Hello there Nick.

Be very interested in your Outcome , As iam in the Same situation, ALL THE BEST. speak soon Jim

Ervin Breuer

16:08 PM, 8th July 2020, About 3 years ago

Reply to the comment left by Brick,Z. at 08/07/2020 - 11:24
Hello Nick
I am in the middle of splitting my freehold to several leasehold. Bear in mind that Land Registry are very slow in registering and can create a problem if you need a mortgage.


7:28 AM, 9th July 2020, About 3 years ago

It is possible without a wife to do it with a trust to avoid the tax. If it is in a company you can do the same of sell to a subsidiary at full value and use group relief to avoid tax. I used mark sadler tnot sure if I can Post a link but search dividing property into flats new lease. His firm is Ker.


14:40 PM, 9th July 2020, About 3 years ago

Thank you Jon I will follow up on that. Do you have a solicitor’s name?
and a rough outline of the process.

My current solicitors seem to be lacking this knowledge they sent me to accountants and charged me for the privilege.
There were snippets of information from Mark Alexander and Ranjan maybe they will do a video on the subject.
I notice there was a previous article on here which had some information: https://www.property118.com/splitting-title-deeds-potential-tax-implications/

Caroline Brooks

15:28 PM, 10th July 2020, About 3 years ago

I did this a few years ago for finance purposes as well. From memory my solicitor moved the freehold title into a limited company, which I set up online cheaply. I gave my accountant a market value for the freehold and they showed it in my accounts as a disposal/sale to the limited company and I think as a Director's Loan to the Limited company. I think you can submit dormant accounts if the Ltd Co does not trade.


8:37 AM, 11th July 2020, About 3 years ago

Make sure you get decent leases drawn up, I have seen some very bad ones recently.

If there is no-one who can join you in this then a company is the best bet. Why do you not want to do this?

Why would you have to pay tax? I recently did this and didn't have to pay any .

Word of warning, it will limit your finance options as a lot of lenders do not like exposure of more than 25% of a block (Precise for one, who also will ask for a charge on the freehold). If it were mine I would try as it is, with someone like Paragon who do multi-unit lets. They are a bit dearer but there are fewer pitfalls.

I would get a good broker to research it for you. I know a couple of good solicitors, whereabouts are you?

Kate Mellor

13:32 PM, 11th July 2020, About 3 years ago

Hi Nick,

I've also done this, and it was hellish!

At the time we had a business loan for the group with Yorkshire Bank and they had given us a deadline to refinance as they were leaving the property sector. It was early post-crash and there wasn't anybody who had stepped in yet to take up the slack so our only option was individual buy to lets. Of course we already had borrowing on the block as it sounds like, you do also.

Your first problem with this is that you can't transfer the freehold before you have repaid the outstanding borrowing and you can't remortgage unless you've transferred the freehold. As Puzzler points out, you won't get a lender to lend on all the leaseholds in the same block and so you will have a number of different applications pending with different lenders and different panel solicitors all of which have to complete at the same time. This also relies on ALL of your new lenders agreeing to a simultaneous transfer of the freehold and remortgage. We found that one of our lenders insisted on the freehold being registered prior to the remortgage. We then had to remortgage another property to raise funds to pay off the balance of the existing freehold mortgage to allow the freehold to be registered to the new company by HMLR and then complete on the remaining mortgages. Alongside that, we had to pay a separate solicitor to create the leasehold paperwork for each individual property. It took many months and was expensive and stressful! I learned an awful lot from it though on the plus side!

The easiest way, as Caroline suggested, is just to create a company, which is what we did. The freehold is generally not especially valuable (ours certainly wasn't) and so there shouldn't be any tax to speak of.

By the time we came to do the second block, Paragon had a product which was suitable and we just remortgaged the whole freehold block with them. It was simple and quick. Paragon have been in the business for a very long time compared to a lot of the non-high street lenders and they are pretty good. We've had products with them for almost 30 years, trouble free.

You should do your sums before committing to this process. Remember you will have to pay a separate application fee for each remortgage application, solicitors fees, for each one, architects fees for the site plans, individual property plans and levels, solicitors fees to draft up the leasehold agreements, solicitors fees for transferring the freehold. You will also have to separately remortgage each property every 2 - 5 years depending how long a fixed term you go for and there will be an arrangement fee for each of those each time, unless you roll them over into a new product with the same lender. So all those individual costs may end up being more expensive than the loan you currently have. Not to mention all the extra time and effort you will have to put in compared with only having the one loan to administer.

Obviously if you plan on selling off the properties individually then you may ultimately need to create the leaseholds, but that's all part of your decision making process.


16:25 PM, 13th July 2020, About 3 years ago

Reply to the comment left by Kate Mellor at 11/07/2020 - 13:32Thank you, that is really helpful. I appreciate your warning. I have looked at Paragon.
Why I was thinking along these lines are from what I have seen there are lot fewer lenders for this type of product and they tend to have higher rates, commercial valuations and fees? Whereas if you have a leasehold flat you are open to more mainstream BTL mortgages with a great variety for example in the length of the fixed period or the LTV. This has been improving in recent years with greater competition.
I have not first hand knowledge but I have watched a video where they mention you are able to get some lender to mortgage all the leasehold flats. I will ask them who the companies are.
These things are often a balance, I guess the cost benefit calculation depends on the size of the mortgage.
As you tend to paying higher rates of interest on a single mortgage which builds up over 5 to 10 years. Against lower rates on multiple mortgages with higher cost in the short term and greater complications. Also you could refinance just one if needed so there some greater flexibility.


16:51 PM, 13th July 2020, About 3 years ago

Reply to the comment left by Puzzler at 11/07/2020 - 08:37
Thank you Caroline and Puzzler

I have a good commercial broker, we looked at the current products in the market which it would fit into the lending criteria, Paragon is a good option but there is always what the criteria are and then what they are actually able to do the subject to vagaries of different underwriters and their funding stream.

The project in London if you have any recommended solicitors.


19:26 PM, 17th July 2020, About 3 years ago

I’ve done this, but transferred the freehold to my wife and I am the leaseholder.
I would echo others warnings about different lenders criteria. Many lenders do not like you to own more than a certain proportion of flat in the building. Some won’t even lend on one of them if you own them all and are borrowing with completely different lenders.
Make sure the solicitor you use is on the panel for the lender, and is experienced in doing this.

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