Share this content
1
2590

Beneficial Interest Company Trust

Experience of Beneficial Interest Company Trusts - Cotswold Barristers

I have recently been made aware of "Beneficial Interest Company Trusts" being promoted by Cotswold Barristers. The objective of the structure is to, effectively, allow the owners of investment properties to continue to claim mortgage tax relief (without transferring the properties into a limited company) following the recent change of tax rules. Does anyone have any experience of this type of arrangment and / or the arrangments provided by Cotswold Barristers?

Replies

Please login or register to join the discussion.

avatar
to michaelblake
09th May 2017 13:20

It is worth pointing out though that Nimesh Shah (of Blick Rothenburg) is incorrect to say that the transfers of income streams legislation will apply.

For the legislation to apply, there must be a transfer of a right to relevant receipts without a transfer of of the asset from which the relevant receipts are derived.

If there is a genuine transfer of beneficial ownership of the properties, subject to the mortgage obligations on them, then there is such a transfer of assets, and the only issue , it seems to me, is a legal one in relation to the position of the parties with the lender.

If there is such a genuine transfer of beneficial ownership, and the lender consents to the arrangement, then I can't see what the problem is with the arrangement.

Contrast that with the position where the company raises new finance on the properties it is acquiring, with that new finance being used to repay the existing finance of the individual(s). ESC D32 would seem to me to not apply in that situation, such that some of the chargeable gains will remain chargeable, despite the potential application of incorporation relief.

There is nothing in law that prevents somebody incorporating their business for tax reasons, contrary to the comments of Nimesh Shah.

Don't believe everything you read in the newspapers.

The "arrangement" being proposed by Cotswold Barristers is nothing more than a bare trust.

Thanks (1)
avatar
to Dick Stastey
31st May 2017 06:19

My (tax) objections to the arrangement include:

1) if (as the article suggests) the mortgage stays with me, I have to pay the interest (but no longer have the income against which to set it); and
2) if the company has not borrowed from me but nevertheless recompenses me for the interest (or pays the mortgage provider direct) then what it is paying is not interest, so is not deductible.

I'd also question whether the trust was nothing more than bare if the company's ability to deal with the property was subject to the need to obtain the mortgage provider's consent.

Thanks (0)
avatar
to Tax Dragon
31st May 2017 09:39

It is a bare trust, that is the whole point.

On (1), I do not understand what you mean by "the mortgage stays with me"? The debt is secured on the property. If the company owns the asset, then the debt secured on the asset is its problem.

On (2) you appear to be applying raw business income principles, but, even then, I still think your analysis is incorrect, by reason of ITTOIA 2005, s 25 (CTA 2009, s 46).

However, for companies, the loan relationship rules apply that also follow the accounting treatment; which, in those circumstances, is to recognise the debt as a liability of the company (substance over form), and the interest thereon as a company expense.

What interest has the individual in paying a debt that is secured on the company's asset, after all?

There are only two ways of getting an encumbered property into a company with the benefit of incorporation relief, and within the ambit of ESC D32; by deed of trust or by conveyance and assignment of the existing debt.

If the company raises new finance to repay the individual's finance, then part of the consideration for the transfer of the business is other than in the form of shares, and a proportion of the gains are chargeable.

I've not come across any lenders willing to go down the assignment route.

Thanks (0)
avatar
to Dick Stastey
31st May 2017 11:53

On (1), the article said "The "beneneficial interest company trust" claims to allow borrowers to move their properties into a company while retaining the legal title - removing the need to remortgage.

"Borrowers transfer solely the beneficial interest into the company, and keep the mortgage in their own names."

What does that mean, if not that I remain liable for the mortgage? "The beneficial interest" in question is surely not in the mortgage - I don't have a beneficial interest in that to transfer.

Thanks (0)
avatar
to Tax Dragon
31st May 2017 12:08

What the article says is an irrelevence. It is written by a journalist. They have no clue about land or tax law, and are quotin a supposed tax expert, who is citing a piece of legislation that cannot apply.

The term "mortgage" refers to the document by which a debt is secured on real property. Given that the debt is secured on the property, any assumption of beneficial interest in the property necessarily involves the assumption of the debt secured on it.

Thanks (0)
avatar
to Dick Stastey
31st May 2017 12:57

As you said before,

Dick Stastey wrote:

I've not come across any lenders willing to go down the assignment route.

(and I'd warrant you are not alone), so in reality we are talking about a situation that cannot exist.

Unless, perhaps, you take Justin's well-don't-tell-them-then advice. But, if you do that, the mortgage company will come after you (not the company) - the liability has not been transferred. Which does, I think, bring my objections to the fore. Perhaps I should have made them in reply to his comment, not yours.

Thanks (0)
avatar
to Tax Dragon
31st May 2017 13:17

You appear to be confused about the law. Legal assignment is a different thing than a transfer of the beneficial ownership of the property, subject to the debt secured upon it.

I do not advocate "not telling the lender". I advocate taking legal advice in relation to such transfers.

Thanks (0)
avatar
to Dick Stastey
31st May 2017 14:08

Have you found that lenders are willing to consent to a transfer of the type you describe, accepting that the original borrower is absolved of all liability?

The debt stays in my name but the company takes on all responsibility for it, including the costs of servicing it. This could happen, perhaps, by way of an indemnity. Any such indemnity represents consideration I receive for the transfer of the properties. Consideration is capital. I am not seeing a loan relationship here, I am seeing a capital acquisition for consideration and capital payments under an indemnity. Capital payments, notwithstanding Ss25 and 46 as above, are not allowable.

Thanks (0)
to michaelblake
21st Jun 2017 07:30

I am very late to the party here. By the time I found this post via a Google search there had already been multiple threads, one of which had over 50 comments posted. Some of the comments were based on false assumptions. I have responded to some but do not have time to respond to them all.

However, below I have posted a link to a 17 page eBook which explains how and why this works and how to go about obtaining non-statutory clearance.

https://www.property118.com/wp-content/uploads/2017/06/Guide-To-Incorpor...

Thanks (0)
avatar
By MBK
09th May 2017 13:18

I haven't looked at the particular offering in question - but the principle of what they are doing is just fine - for tax. The guy bleating about the transfer of income streams anti avoidance legislation is plain wrong.

But it will almost certainly be a breach of the related mortgage agreement which would entitle the lender to call in their loan - if they knew. Some clients will be content to run that risk, others won't.

Thanks (1)
avatar
09th May 2017 15:24

I agree entirely with PNL's & MBK's above comments. I have seen so much rubbish published about s162 incorporation relief for BTLs and these so-called special trusts (that are nothing of the kind as a bare trust is just a nominee and is therefore not actually a proper trust at all ) it's worrying.

Certainly the doctrine of illegality won't apply if you just don't tell the mortgagee. See for example: http://www.bailii.org/uk/cases/UKUT/TCC/2017/103.html

Thanks (1)
Share this content