Landlord Incorporation - Beneficial Interest Company Trusts

Ahead of the Spring 2016 budget, there has been a huge increase in the number of enquiries regarding the use of Beneficial Interest Company Trusts to avoid the need to rearrange mortgage finance when incorporating residential rental property businesses.

The rules regarding Stamp Duty Land Tax changes are still not clear but one thing is for sure, SDLT isn’t going to be any cheaper for anybody and may well increase significantly for most if not all BTL related transactions. However, the increase in enquiries may well be due to speculation that The Chancellor could announce the withdrawal of section 162 incorporation relief for private landlords.

This is the tax relief which can cancel out CGT on transfers to a company. Thankfully it wasn’t mentioned in the 2015 Autumn statement but speculation is rife that George Osborne (seemingly intent upon taxing private landlords out of existence) will introduce the measure at some point in order to trap private landlords into paying the additional taxes announced in his Summer Budget 2015, i.e. clause 24, restricting finance cost relief for individual landlords.

The cost of re-arranging finance is a major hurdle for landlords to consider when moving assets into a company. However, taxation is associated with beneficial ownership (who gets the profits) whereas mortgage lenders are focused on legal ownership of asserts pledged as security and their ability to repossess them in the event of default.

Beneficial Interest Company Trusts enables landlords to incorporate without having to change their financing arrangements. Last year, a QC at the highly acclaimed Pump Court Tax Chambers provided opinion that a transfer of 100% of beneficial interests in a property portfolio to a company would qualify for section 162 incorporation relief, subject to all other conditions associated with case law being met. The effect is that private landlords can benefit from the tax structure of companies which remains untouched and allows mortgage interest to continue to be offset against rental profits.