Case Study – Section 162 Incorporation – London
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Our clients owned a portfolio of 14 properties held jointly in personal names, valued at around £5m with comparatively low borrowings of £1.5m. Both clients are higher rate taxpayers, owning a successful cosmetic surgery based in London.
To purchase a new property to add to their portfolio.
A small CCJ had been incurred by taking on a mobile account for their son, which would usually present a hurdle if we were to secure the very best available schemes.
A number of calls were made to several different brokers to seek out the best available solution by our potential clients, Steve Walker was the adviser they spoke to here. Steve was keen to understand the background portfolio, the primary objective was initially to establish the overall health of the background portfolio as this is paramount to the success of any case of this nature, as lenders will review not only the subject property, but will also assess the portfolio holistically during the underwriting process, delving in to assess the liquidity and performance of the background portfolio under PRA (Prudential Regulation Authority) regulations.
Equally as important, Steve needed to understand the clients’ circumstances and ascertain the best way of structuring the finance for the clients’ benefit.
A number of other key points were discussed originally, to ensure his solution was on point.
Steve checked with our potential clients as to whether they had taken professional tax advice and whether they were fully aware of the implications of personal tax changes which could take their effective rate of tax to eye-watering levels. Steve recommended a major accountant in London that we work with who agreed to an initial personal consultation at no charge, to establish how they might be able to add value.
Understanding the full implications and now being fully appreciating of the impending harsh tax environment for landlords with personal mortgage borrowings, our clients were now exploring the possibility of incorporating their portfolio to a limited company by utilising case law through Section 162 relief. Assuming the circumstances met HMRC’s laid out guidelines, this would enable clients to move from a personal structure to a corporate ‘limited company’ ownership whilst also mitigating CGT (Capital Gains Tax)and Stamp Duty as dictated by the ‘Ramsay ruling’. As well as assisting with current tax liabilities, it would also help with inheritance tax for the future longevity of the portfolio and protecting family legacy.
⭑⭑⭑⭑⭑Matt Hardman, Director at The Buy to Let Broker, said “Without doubt, it has been a personal highlight of Steve’s brokering career to date to watch the result of his efforts and service have such a tangible impact, not only to his clients but also their family, which ultimately became the reason to incorporate their portfolio at the outset due in whole to Steve’s outstanding service and holistic approach. It’s always been our ethos here to ensure any client heads into a transaction with their eyes wide open – and this is the perfect example of that.”
After fully exploring all avenues and having several meetings with the accountancy practice, our two clients decided to proceed with the switch to a limited company. Of course, this would require re-financing the entire portfolio to limited company lenders, a significant investment from our clients, but for the future of the portfolio, the savings it would generate and the legacy it would create, it was warranted. This would enable our clients to also raise further capital to inject into their property company and further expand the portfolio as well as assisting their sons onto the ladder.
The background CCJ would present a hurdle and one that would need a pre-case exception in order to have the case agreed at standard rates with our preferred lender.
The adverse credit was pre-handled on the basis of the many merits of the case which significantly outweighed the one blip to our clients’ credit file and we secured the full amount of borrowing at the preferred rate/fee structure. This was done by contacting a senior credit manager at the lender and the case being put before credit committee, we also utilised our dedicated underwriters at the lender who only work with our cases.
The cases were agreed by the lender following valuation in a few short weeks, and after a number of months of determined work with conveyancing, the significant case was completed. Our clients not only had a more tax-efficient portfolio but also had the ability to allow their two sons to achieve their own goals of owning property due to the capital raising element of the applications.
Thanks to Steve’s expertise the total borrowing ended up being around £3million initially with another off-plan property being added shortly afterwards with a loan size of £415k.
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If you would like to know more about portfolio incorporation and chat to a broker that has in-depth mortgage knowledge, give us a call on 08009499410 today. You can also request a callback by entering your details below.
Any property used as a security may be repossessed if you do not keep up with repayments on your mortgage.