Help please
I have a client who holds three buy to let properties worh around £10m in total, two in a partnership with his family and one personally. He has substantial borrowing against the properties and is worried about the impact of HMRC restricting loan interest relief. He also wants to reduce his likely IHT bill.
One option is to incorporate the business to be able to preserve full interest relief for the borrowings. Rollover relief could be claimed for CGT. But no BPR will be available for the shares on death unless the company is converted into one which is not an investment company, eg a property development company.
Alternatively he could transfer the properties into trust, and providing he survives 7 years and the trust is structured correctly then there will be cgt holdover relief on transfer into trust and the properties will fall out of his estate for IHT purposes.
But what if we take this one step further and he incorporates the property letting business into a company before he transfers the shares into trust? Is there any advantage/disadvantage in this (apart from the availability of claiming full tax relief on the interest vs extracting the profits and the usual Company Tax admin nightmare). I only usually deal with personal tax not corporation tax so would welcome advice.
Thanks in advance
Replies (7)
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What makes you think rollover relief will be available?
The fact that there are only three rental properties, it is very unlikely to constitute a business for the purposes of s162.
What makes you think a property development company gets BPR?
The transfer in to a trust will be a C.L.T so lifetime IHT will be payable.
Any rental income in the trust will be taxed at 45% (if a DT). If the trust held the shares, any dividends will be taxed at 38.1% in the trust.
Back to the drawing board unfortunately.
What makes you think a property development company gets BPR?
Well, I know that Robert Maas thinks it does, and I'd feel fairly encouraged by that.
Making and holding investments doesn't and neither does "dealing" in land. Developing is neither of those things though.
That's a trite point (see link below - you don't need RM to tell you that) and I was about to say the same, but I assume he must have meant development for rental rather than sale (since development for sale is clearly no different to any house builder trading as such).
https://www.enterprisetax.co.uk/inheritance-tax-and-property-based-busin...
What's happening to the
substantial borrowing against the properties
? I ask that in response to your lack of worry re SDLT, but I've also been wondering whether you are concerned about deductibility of the debt(s) for IHT, since that seems to be one of the key drivers.