Incorporation of Property Portfolio and mortgages

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I know there has been numerous threads about the incorporation relief and SDLT relief on a property business incorporation but I am interested in the loan side of things where there are mortgages secured on the properties to be transferred.

If we assume that an active property partnership qualifies for s162 relief and SDLT relief (obviously a big assumption but these have already been discussed at length elsewhere) my understanding is that under ESC D32  (https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65745) business liabilities that the company takes on are not treated as consideration. But the property 118 schemes and others tried to remedy the issue whereby for property

  • The lender has to be notifed that the legal ownership of the property is changing
  • In the case of individual mortgages, a number of lenders require a new loan to be taken out in the company and the old loan paid off.

The latter arguably creating consideration which is not covered by s162 relief (I'm assuming that the mortgage isn't classed as a personal liability).

I know a number of people on here do not agree with DN's analysis of the s162 relief points on the Property 118 scheme and that a gain may not neccessarily arise. So is it possible, assuming you can get over the first hurdles in relation to partnership/S162, to incorporate with mortgages without there being consideration?  So without adding in the DLA greedy bits property 118 included, would a bridging loan situation whereby a lender agrees to pay off all prior mortgages with a bridging loan owed by the property business which novates to the company to be subsequently repaid with new mortgages potentially work for s162 purposes?  

The purpose of ESC D32 was to prevent there being a tax liability where no cash had been received and that is the case here but the whole DN piece and analysis has confused me. Clearly there are risks involved as HMRC may not agree but I am trying to understand from a base line perspective why the bridging loan does not work.  Is there any permeation or loan steps which do potentially work better?

Just for the avoidance of doubt I am not trying to create a new 'scheme' but have a client with a substantial property student lettings business and for many commercial reasons a corporate wrapper is needed. 

Replies (6)

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Replying to Justin Bryant:
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By Justin Bryant
24th Jan 2024 09:48

Even so-called experts get this wrong. For example, this article is full of basic errors: https://stevejbicknell.com/2022/05/04/can-i-just-move-my-buy-to-let-into...

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Replying to Justin Bryant:
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By Justin Bryant
24th Jan 2024 10:33

P62 here is a better analysis: https://forbesdawson.co.uk/Dec16Presentation.pdf

You pays your money and you takes your choice.

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By ireallyshouldknowthisbut
23rd Jan 2024 11:57

Most of the property 118 scheme's rely on a very large element of fiction and advisors knowing little, and clients less.

I wont engage in any client thinking of it, it's just not worth the blow back down the line when this stuff fully implodes.

Even if you manage to get this working as advertised, its going to get caught up in the tsunami of ones which don't when HMRC get stuck in and your client is going to be pouring in hundreds of hours to defend themselves.

See employee benefit trusts, only idiots got involved in those and now bleat about it.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
23rd Jan 2024 14:46

That's not quite right re EBT loan schemes, as pre-2011 EBT loan schemes escaped the 2019 LC (on paper at least) thanks to the Morse Review.

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Replying to ireallyshouldknowthisbut:
By SteveHa
03rd May 2024 16:18

I've recently had one land on my desk who had engaged based on the sales spiel presented by the Property 118.

I had my gut feelings how to handle it (though thankfully, Justin suggested that my knee jerk may not be the best jerk), and today, I've finished my first draft of my report for the client offering options. I have to say, none are particularly attractive, and the best outcome will depend on the outcome of P118's appeal against the DOTAS SRN (which none of us can be certain of, but I'm definitely in the "unlikely to succeed" camp).

It will presented to the client to assess the relative merits and costs of each option (one being, suck it and see).

I've reached the point where I'm not prepared to advise a course of action. Whatever I advise has the potential to blow up in my face.

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Replying to SteveHa:
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By FactChecker
03rd May 2024 17:53

Undoubtedly wise (your final para) ... although I'm mildly surprised that your sense of self preservation didn't kick in *before* engaging the client.

'A bucket full of who knows what .. certainly toxic and quite possibly unstable' as someone described to me the result of following a P118 'plan'.

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