Worried about mitigating S24

by Readers Question

8:00 AM, 20th February 2020
About 6 months ago

Worried about mitigating S24

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Worried about mitigating S24

Maybe I have over-complicated things in my head, so can anyone help me sleep easier, please?

Under the most popular s24-mitigation options, properties are transferred from personal ownership into a company structure, and HMRC now considers that the company now has “beneficial ownership” of the properties instead of the former individual(s). HMRC applies corporate taxation rules rather than personal taxation rules (and this should result in lower tax than would apply under s24).

However, the Land Registry still shows the individual(s) as legal owner(s) of the properties, and any mortgages on those properties would still be in the name(s) of the individual(s).

When it comes time to remortgaging any of them (e.g. end-of-term or better rates), the new mortgage will still need to be in the name(s) of the individual(s) because the security (the property) is still in their name(s).

My main concerns, however, are about how well protected are the assets? If the company were to become insolvent, would administrators be able to force the sale of those properties because HMRC considers the company to be the beneficial owner?

Or would the administrators not be able to touch the properties because they are still in the names of the individual(s)?

Likewise, if any of the individuals named on the Land Registry and the respective mortgage were to face insolvency, would those administrators be able to force the same of the properties, because of the individuals’ names still attached to them?

Or would the beneficial ownership status protect the properties from the actions against the individuals?

Presumably the treatment with regards to Inheritance Tax must be the “beneficial ownership” route, as this is still within the HMRC remit.

But what about the actual inheritance angle? Would the actual properties be part of the probate process? Or just the shares in the company that now enjoys beneficial ownership?

Richard



Comments

Dave S

10:13 AM, 21st February 2020
About 6 months ago

A very good point Richard I look forward to the reply from hopefully those who know more about it than me or you

brian gibson

11:50 AM, 21st February 2020
About 6 months ago

First of all transferring the beneficial ownership can only be done if you are a trading partnership ( min 3years)
If you think of the beneficial interest is income only the assets remain in individual names (even though for tax purposes there in your partnership ) the mortgage lenders still have their charge over them and are not protected in anyway from insolvency ,repossession ,bankruptcy .
Transferring beneficial interest is to mitigate the impact of the ludicrous S24 !

This is a layman's overview from our experience having done 300 properties 2 years ago with the help ( and you will need help ) from Mark Smith at Cotswald Barristers .
We have now gone on to refinance on a commercial basis and the Beneficial interest trust didn't stop this , we had to call on Mark again to explain to both sets of solicitors what we had done (thanks again Mark if you're reading this )

Mark Alexander

12:27 PM, 21st February 2020
About 6 months ago

In response to the questions posed by Richard ...

If the legal interests in properties are held on trust by an individual(s) "nominee(s)" for the benefit of a Limited Company "the beneficial owner" then in the event of the Limited Company going into administration or liquidation, the liquidator or administrator can call upon the nominee to sell the property and transfer all net proceeds of sale to the company.

If the nominees were declared insolvent, any net proceeds of sale of the properties held on trust for the company would belong to the Limited Company.

Tax always follows beneficial ownership.

IHT is charged on the value of assets. Shorn of its beneficial interest, a property has no value for probate/IHT purposes. However, shares in a Limited Company do have value for probate/IHT purposes.

In the event of the death of a nominee, the Limited Company could call for the properties to be transferred to it, subject of course to the company obtaining new financing. Alternatively, the company could call for the properties to be sold and all net proceeds of sale would then belong to the company.

I trust that answers all of Richard's questions in the main article above?

Mark Alexander

12:34 PM, 21st February 2020
About 6 months ago

Details of how the Substantial Incorporation Structure actually works can be read via the link below. In both the original question and at least one of the answers above the terminology used might be confusing to some.

https://www.property118.com/tax/incorporating-property-portfolio-without-refinance/

Bespoke professional advice, from a qualified, experienced, regulated and insured practicing barrister is essential and any information published on Property118 must not be regarded as such

Peter

11:41 AM, 23rd February 2020
About 6 months ago

Can someone answer this query please? If you successfully transfer the properties into a company I can see that you would then pay corporation tax at 19% on your profits rather than your top rate of personal tax. However, that means the money you make resides in and is owned by the company. To get hold of that money to spend, wouldn’t you have to then pay tax on the dividends? In which case, in round figures, the total amount of tax paid is slightly more if you have your properties held by the company . Is this so? Thank you, Peter

Mark Alexander

12:46 PM, 23rd February 2020
About 6 months ago

Reply to the comment left by Peter at 23/02/2020 - 11:41
Hi Peter

Yes that is correct, but on the flip side you can offset 100% of your finance costs against rental income in a company.

With the benefit of Capital Account Restructuring it may also be possible to have a Directors Loan account to facilitate tax free withdrawals.

A consultation and bespoke planning is essential in all cases, because no two sets of circumstances are ever the same.

Richard Peeters

13:04 PM, 24th February 2020
About 6 months ago

Reply to the comment left by Mark Alexander at 21/02/2020 - 12:27
Many thanks Mark!
Ours is not structured as a Trust, so there are no complications with Nominees.
As you say "Tax follows beneficial ownership", so they should be protected from IHT.
Since title and mortgage security do not follow tax, then they remain at arm's length for insolvency purposes, either way.

Peter

13:16 PM, 24th February 2020
About 6 months ago

Hi Mark, thanks for your reply.
I’m afraid I don’t understand what you mean by ‘Directors Liam account time facilitate tax-free withdrawals’.

Perhaps you can expand?

Kind regards, Peter

Mark Alexander

13:24 PM, 24th February 2020
About 6 months ago

Reply to the comment left by Peter at 24/02/2020 - 13:16
Sincere apologies for my typo's which have now been corrected. What I intended to say was ....

With the benefit of Capital Account Restructuring it may also be possible to have a Directors Loan account to facilitate tax free withdrawals.

Please see https://www.property118.com/tax/capital-account-restructure-landlords/


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