For landlords and newcomers in the UK real estate market, structuring your property portfolio efficiently is a vital early step. However, this is not a simple matter, as multiple factors such as residency, domicile, liquidity, strategy, inheritance tax implications, and long-term exit plans need to be carefully considered. While it’s important to acknowledge that we aren’t tax advisors and will always recommend professional counsel, drawing insights from our experiences can shed light on some crucial aspects.
While off-the-shelf single-purpose vehicle (SPV) formations may suffice in some cases, they often miss key benefits. By engaging with experts who possess a deep understanding of the intricacies involved, you can make informed decisions regarding the most appropriate share and loan structures. This proactive approach ensures that you optimise the potential advantages of holding property investments within a company structure.
Share structure – One of the compelling aspects of purchasing property through a company lies in the diverse range of share types that can be issued based on your specific objectives. From ordinary shares to preference shares, freezer shares to growth shares, there are a wide array of options available. Each share type can possess unique characteristics, such as voting, capital and distribution rights. Ultimately effecting control, IHT mitigation, dividends, profit extraction and exit strategies.
This flexibility offers significantly more choices compared to holding property in your personal name or a standard SPV with just ordinary shares, empowering you with greater flexibility and strategic possibilities.
One important example of this is growth shares, which can serve as a strategic tool to mitigate Inheritance Tax (IHT) liabilities by providing a mechanism to transfer future growth and value to the next generation while retaining control and income for the current shareholders. This structure allows individuals to retain control of the company while passing on the potential future increase in the company’s value to beneficiaries, reducing the value of the estate subject to IHT.
Exit opportunities – There are substantial tax advantages associated with selling the shares of your property company compared to selling individual assets. Selling shares incurs a Capital Gains Tax (CGT) charge, ranging from 10% to 20%, depending on your tax bracket. This presents a compelling opportunity to significantly reduce your tax liability compared to the higher rates of 18% or 28% applicable to personally held properties, or the current rate of 25% (following the recent increase from 19%) within a company, along with potential dividend tax on retained profits.
In today’s dynamic landscape, the significance in acquiring the right assets and structuring your portfolio correctly cannot be overstated. If you are considering investing in the UK property market, then book your free investment consultation with us at your convenience.
