Substantial Incorporation Strategy Scotland “SISS”

Substantial Incorporation Strategy Scotland “SISS”

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SISS is an abbreviation for Substantial Incorporation Strategy Scotland.

Legislation already exists to help landlords running business partnerships to transfer the business to a company structure without paying LBTT, and to roll capital gains into shares. SISS dovetails with these arrangements to enable the transactions to conclude without immediately needing to refinance.

Where existing mortgage terms are particularly competitive, and/or when the costs typically associated with refinancing are prohibitively expensive, that is when the SISS structure comes into its own.

SISS is not designed to avoid or defer tax. In fact, it does quite the opposite in that it triggers taxable events early and then utilises reliefs to mitigate the tax which would otherwise fall due.

LBTT anti avoidance legislation (LBTT is the Scottish equivalent to Stamp Duty) has provisions to say that where a sale is “substantially” completed it is deemed to have completed after 30 days whether the conveyance has been legally completed and registered or not. This is a key factor for this strategy.

SISS involves substantially completing the sale of the ‘whole business’ of a rental property partnership and claiming rollover incorporation relief under TCGA92/s162.

SISS “substantially” completes the transfer of a rental property business whilst deferring the requirement to refinance until the end of the existing mortgage contract term, or at the behest of the company to which the business is being transferred into. The business sale transaction is “substantially” concluded when the net equity in the business assets is exchanged for share capital, which in turns absorbs capital gains in the assets of the property rental business. From this point forwards the business is conducted within the company. In regards to the properties within the business, missives are exchanged, but the contract notes that the completion of the conveyance will not occur until the day before the expiry of the existing mortgage term, or at the behest of the company to which the business is being transferred, whichever is the sooner.

SISS is quite the opposite of avoidance from a tax perspective. We are actually using anti avoidance legislation to hasten the deemed completion of a business sale and trigger the LBTT return. However, just as England and Wales have legislation which treats Partnerships differently when they become companies, so does the Scottish LBTT system – see

In many cases, the LBTT payable when a partnership is transferred to a company under the same ownership is £nil.

Counsel’s opinion from a leading Scottish tax barrister has been obtained in regards to the above and will be shared with paying clients of Property118 Limited.

How it works

If SISS is the recommended tax planning strategy following a private consultation with Property118 (completed online and over the telephone), a bespoke report and recommendations will be produced.

If the owners of the business wish to proceed “in-principle” the report and recommendations (together with counsel’s opinion on the entire structure and associated tax legislation including DOTAS and GAAR Scotland) will be sent to an appropriately qualified and insured Scottish accountancy firm of the landlords chosing for a second opinion. If that opinion matches the Property118 recommendations the Scottish accountancy firm will then formally adopt the Property118 recommendations as their own professional advice, subject to the firm being appointed to deal with implementation. We have a close working relationship with an accountancy firm whose Principal is a portfolio landlord and has used the SISS strategy to incorporate her own property rental partnership business of 73 properties. We will be pleased to introduce our consultancy clients on request.

The conveyancing, business sale agreement and associated documentation will be need to be completed via a  reputable Scottish law firm regulated by the Law Society of Scotland.

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    Note that you must incorporate the 'whole business'. One property business will have all the same owners for each property. If you own properties with different co-owners, those properties are treated as part or whole of a separate business.