Property Investment Company

Property Tax | Corporate Structuring

A family office sought comprehensive advice on the tax implications of their property investment structure.

The family held a substantial portfolio of residential and commercial properties, some held directly by individuals, some through a family company, and some through a trust.

The structure had evolved over many years and had never been reviewed holistically.

The family's objectives were to understand their current tax position, identify any inefficiencies in the existing structure, and consider options for the next generation.

We conducted a detailed review of the existing arrangements, which revealed a complex picture:

• The properties held directly by individuals generated rental income taxable at up to 45%, with no relief for finance costs on residential properties following the restriction introduced from 2017.
• The family company held commercial properties and was subject to corporation tax on rental profits. However, extracting profits from the company would trigger additional income tax charges.
• The trust held a mix of properties and had accumulated undistributed income. Distributions to beneficiaries would carry tax credits, but the overall effective rate was high.
• Several properties had significant unrealised capital gains. Any restructuring would need to consider the capital gains tax implications of transferring properties between entities.
• Inheritance tax was a significant concern, as UK residential property is subject to IHT regardless of the domicile of the owner, following changes introduced in 2017.

We prepared a comprehensive report analysing each element of the structure and setting out the options for improvement. Our recommendations included:

• Reviewing the debt structure to ensure that finance costs were being claimed as efficiently as possible given the current restrictions.
• Considering the incorporation of directly-held properties, taking advantage of incorporation relief where available and timing any transfers to coincide with periods of lower gain.
• Restructuring the trust's property holdings to facilitate distributions to beneficiaries in a tax-efficient manner.
• Implementing a succession plan that would transfer value to the next generation while managing the inheritance tax exposure through the use of reliefs and exemptions.

We worked with the family's accountants to model different scenarios and quantify the tax savings available from each option. This enabled the family to make informed decisions about how to proceed.

Outcome

Holistic review of property portfolio completed with detailed analysis of income tax, capital gains tax, and inheritance tax.

Family provided with a restructuring roadmap projected to deliver significant tax savings over the medium term.

This case study is based on a real client matter. All identifying details have been removed or changed to protect client confidentiality.