Portfolio landlords are faced with a number of challenges when it comes to tax.

One is Capital Gains Tax, which becomes an ever-increasing problem as property prices rise. Another is the loss of tax relief on mortgage interest. And then there’s Inheritance Tax, which itself could run into hundreds of thousands of pounds even for a modest portfolio.

Fortunately, there is a solution that addresses every single one of these challenges, and another one to boot. At Maplebrook Wills we call it Landlord Planning, and in this article, I’ll explain how it works.

Most portfolio landlords will be aware, by now, of the Section 24 tax changes that prevent mortgage interest being offset against income tax. Many might also know that by putting properties into a company, they can offset mortgage interest against corporation tax instead.

However, if you simply put properties into a company, you would have to pay stamp duty at 0.5%, which itself could cost you tens of thousands of pounds.

That’s why our solution, which takes three years, has three stages:

Stage 1: Partnership stage

Stage 2: Incorporation stage

Stage 3: Trust stage

If you go from a partnership to a limited company, there’s no stamp duty to pay. You might find articles online discussing whether this is, in fact, allowable. However, it’s perfectly valid to use a partnership as a stepping stone to incorporation if the partnership runs for at least one year.

The partnership stage involves drawing up a formal partnership deed, registering it with HMRC and submitting a set of partnership accounts.

A year later, the incorporation stage begins. You could transfer the equity into the company without transferring the mortgages or notifying the lender. But over time, you will want to remortgage the properties in the name of the company. The interest rates will be higher, but you will now be able to offset mortgage interest against corporation tax.

And then the really big saving. Under Section 165 of the Taxation of Chargeable Gains Act 1992, all historic Capital Gains will be wiped out on the day the properties go into the company, provided that there’s a genuine business.

What counts as a business? HMRC guidance says you:

  • Own 4 or more properties
  • Have more than £25,000 a year of rental income
  • Actively buy or sell properties
  • Spend 10 hours a week managing your portfolio.

If you outsource the entire running of your property portfolio to someone else, you wouldn’t meet these requirements. But you have plenty of time to make adjustments. During the year it takes to run the partnership stage, we can advise you on the steps you need to take.

We run the incorporation stage for 2 years before the final stage: the trust.

Next Steps

Maplebrook Wills can provide landlord planning solutions for landlords across England and Wales. To book an initial, no-obligation conversation about landlord planning, call me on 0117 440 1230. You can also reach me at graham.southorn@maplebrookwills.co.uk

In the initial meeting, I’ll take some details about your properties in order to provide a feasibility report outlining the potential cost savings.

We will discuss:

  • The nature of your property business today
  • The legal ownership of your properties
  • The value of your properties today and when you bought them

For further details on Maplebrook Wills Bristol, visit: