Estate Planning Advice:
Property Portfolios

In April 2017, the UK government introduced Section 24 of the Finance Act (no.2) 2015. It’s colloquially referred to as ‘Section 24’ or the ‘tenant tax’. In a nutshell, this legislation made investment properties held in personal names far less attractive especially for higher rate and top rate taxpayers.

This was because previously landlords could offset mortgage interest costs and other finance costs from their rental profits thus reducing their taxable profits. However, since the 2020-21 tax year, landlords can no longer offset these costs but rather get a 20% tax credit on their mortgage interest.

As Section 24 doesn’t apply to properties held within a Limited company, there has been increased interest in both buying through a Limited company and incorporating personally held property into a Limited company structure to reduce tax exposure.

But incorporating can seriously damage your children’s wealth over the long-term, as extracting funds from the Limited company to pay an inheritance tax bill, may first require the payment of several other taxes which include:

• Corporation Tax
• Income Tax
• Dividend Tax

Therefore, wherever you are in your property investment journey we consider the most tax efficient and sensible way to achieve your objectives.

This could mean (not exhaustive):

• Putting in place a Declaration of Trust, declaring the beneficial interest of your properties into your spouses’ name as they may not be a taxpayer.
• Strategically gifting personally held property into a Holdover Gift Trust, for the benefit of your children.
• Setting up a Family Investment Company with different share classes and different rights.
• Setting up a Limited company to be a bridge between you and the private tenant.
• Confirming that a Trust of Land (ToL) had always been in place having considered the history and beneficial interest of a property.

There’s no one size fits all and some of the above work is undertaken in conjunction with our highly qualified and experienced associate partners in property development.

Download our guide on Incorporation.