Title splitting on freehold property

by Readers Question

13:37 PM, 18th February 2015
About 4 years ago

Title splitting on freehold property

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Title splitting on freehold property

Hi there, I’m Chris from Benfleet, Essex. I’m relatively new to property investing and am seeking some advice if anyone out there can advise me.

I have 3 BTL properties and 1 mixed commercial/residential property (a 2 bed flat and a shop below). I currently have this property on a repayment commercial mortgage. Title splitting on freehold property

I tried to change this to a BTL mortgage so I could get a lower rate than a commercial mortgage but as the property is part commercial I cannot do this.

I’m currently talking to the lender and they have just agreed to let me remortgage onto a BTL mortgage and at the same time split the title of the property into 2 separate properties.

I would then have no mortgage on the shop and a BTL mortgage on the flat so 1) I can get a lower mortgage rate and 2) It makes it easy if I decide to sell either property.

I was thinking of putting the flat on a new 125yr lease but my question is; am I best to also put the shop on a 125yr lease and have the freehold ground rent as a separate thing or am I best to just have the shop with the freehold or am I totally missing something else here that could work better?

Any advice/tips would be much appreciated.

Regards

Chris



Comments

Mark Alexander

13:45 PM, 18th February 2015
About 4 years ago

Hi Chris

What I would do is create separate 125 year leases for each unit and then transfer the reversionary freehold interest of the building into a new SPV (special purpose vehicle) limited company as a simultaneous transaction with the reportage.

If you are unfamiliar with freehold management have a chat with this lady, I've done business with her personally >>> http://www.property118.com/member/?id=384

You will need a very good solicitor to sort this out for you and also to create the NewCo. Fortunately we have a JV partnership with the perfect person and the website is run as a sister site to Property118 - see >>> http://buytoletconveyancing.co.uk/ - towards the bottom of the home page you will see some info about title splitting.

You should also seek professional advice on CGT - see >>> http://www.property118.com/member/?id=452

Please let me know how you get on.

I like your thinking by the way. You are doing exactly what I would do in the same situation 🙂
.

Chris Cottage

21:17 PM, 18th February 2015
About 4 years ago

Reply to the comment left by "Mark Alexander" at "18/02/2015 - 13:45":

Hi Mark, Thank you very much for your advice. I will speak with Annette and then discuss what you have recommended with my accountant and solicitor to see how a can move forward with it.

Kind Regards
Chris

Nigel Roberts

11:39 AM, 19th February 2015
About 4 years ago

Mark's advice is right on the money. For NewCo (a.k.a. the SPV) I'd consider (with advice from your accountant) whether to use an LLP (Limited Liability Partnership) instead of an LTD (private company limited by shares).

Neither is "better" in any absolute sense, but each has advantages the other does not.

Both of them have separate legal personality (that is they exist independent of their members/partners/shareholders). Both of them have limited liability.

LLPs are REALLY cheap (20 pounds or so) and flexible. The most interesting feature of all is that as far as HMRC is concerned they are virtually invisible. (The technical name here 's "tax transparent"). This means that although treated like a Limited company, the tax man does not tax them -- instead he taxes the partners on the distributions they receive from the LLP.

This may work to your advantage, or you may prefer the separate taxation of a traditional Limited Company. Your accountant should be able to advise on the best structure for you.

Chris Cottage

15:03 PM, 19th February 2015
About 4 years ago

Reply to the comment left by "Nigel Roberts" at "19/02/2015 - 11:39":

Hi Nigel,

Thank you very much for your message. I really like what you and Mark have said and now really is the right time for me to put this in place. I have a lot of talking to do with my account and solicitor and will keep you both updated of which company inform.

Kind Regards
Chris

Nigel Roberts

16:13 PM, 19th February 2015
About 4 years ago

Good luck with this process.

I'm thinking that everyone who has property interests over and above a single owner-occupied dwelling needs a primer in basic land law, and what is possible with both legal and equitable interests (including trusts).

Owning property in sole (or joint) personal names is not the only option. Oligarchs have been doing this for years, using both trusts and companies. Hence the latest TED tax in the UK ('taxation on enveloped dwellings').

Good accountancy advice is paramount -- particularly as, if taxation changes to your disadvantage, it may not be possible easily to unwind certain holding structures (this applies particularly to trusts). Sometimes simplicity and flexibility are more important that minimising tax.

Let us know how you get on.

Chris Cottage

19:32 PM, 19th February 2015
About 4 years ago

Reply to the comment left by "Nigel Roberts" at "19/02/2015 - 16:13":

Thank you. Nigel.

Chris Cottage

17:32 PM, 28th April 2015
About 4 years ago

Hi Mark & Nigel, sorry for such a delayed response but regarding the above matter that you both kindly advised me on (best to put flat & shop on 125yr lease & freehold into a ltd company). I'm going to see my accountant in a few days regarding this. Can you just let me know how doing it this way (the ltd company) part will benefit me over just keeping the freehold with the shop or the flat when doing the title split. I'm a bit new to this and would be most greatful if you could let me know how this will benefit me.

Thank you 🙂

Nigel Roberts

17:48 PM, 28th April 2015
About 4 years ago

Yes.. simply put, it's alienable separately. You can get rid of it (if you want to).

In other words, imagine you sell the shop to one person, and the flat to another.

You create long leases on both, since leasehold is well understood by purchases and (as important) banks/building societies.

But that leaves the freeholder (you) with the remainting obligations of the freeholder, and you may not want that. Even if there's little actual cost, the admin costs of collecting a ground rent might be a pain . . .

So, you can (just as an example) put the freehold into an dedicated LLP or LTDco (which for the sake of argument I'll call an SPV or single-purpose vehicle), and you can then include the appropriate interest in the SPV with the sale of the leases. This gets you out of the picture completely once both sales are completed.

And it leaves the two owners of the new properties to worry about mantaining common areas etc, themselves.

The land registry even know about such things under the name 'commonhold'.

Chris Cottage

23:02 PM, 28th April 2015
About 4 years ago

Reply to the comment left by "Nigel Roberts" at "28/04/2015 - 17:48":

Many thanks Nigel. Great advice.....

Atheer Ibrahim

22:02 PM, 18th December 2017
About 10 months ago

Reply to the comment left by Chris Cottage at 28/04/2015 - 23:02
Hi Chris,
Just wondering if you managed to split the shop and the flat into two separate titles ? I have recently bought a shop and a flat above and I would like to do the same so i can get BTL mortgage on the flat instead of a commercial mortgage which is much more expensive


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