RESTRUCTURING A BUY TO LET PORTFOLIO

Instruction received to assist a client with a considerable buy-to-let property portfolio, which he and his wife had worked hard to build over a 30 year period, to address changes announced in the 2015 Autumn Statement.

The Autumn Statement announced an additional 3% levy on Stamp Duty Land Tax (“SDLT”) when buy-to-let properties are purchased, which have since came into effect from 6 April 2016.  Further changes announced will begin to restrict mortgage interest relief from 6 April 2017. The client was facing his average returns, and subsequent main line of earnings, falling by around 30-40% as a result of these changes.

A detailed analysis of the client’s property portfolio was undertaken, together with an in depth understanding of the landlord’s future aims and aspirations in order to ascertain the most suitable restructuring package.

As the properties were actively managed, we advised the client to convert the property business to a company structure, by taking advantage of “section 162” incorporation relief.  Companies are currently unaffected by the mortgage interest relief restrictions, allowing the client to claim a full deduction for mortgage interest paid as well as  offering a tax efficient vehicle in which to receive the rental income due to returns being taxed in a corporate environment.

Substantial capital gains tax efficiencies were introduced upon incorporation, as the properties transferred to the company enjoyed an uplift in their base cost to market value, which effectively meant that the significant historic capital gains that had been built up over many years were “washed out”.  This has meant that certain properties could be sold with little or no chargeable gain, thereby increasing the cash proceeds that could be spent on new property acquisitions or a new venture.

Please note: this case study reflects the facts, circumstances and tax position at the time the project was undertaken. It has not been updated for any subsequent change in tax law or practice and must not be construed as advice, or otherwise relied upon for any purpose.