1. By Cotswold Barristers
Landlord Tax Planning
By Cotswold Barristers
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2. Mark Smith
Barrister-At-Law

3. Qualified as a solicitor in 1986 and has been a Barrister-At-Law since 1996
Head of Chambers at Cotswold Barristers and Hon. Legal Counsel for The Landlords Union “Property118.com”
We hold the UK record for having conducted and won the largest Direct Public Access case, recovering £27,500,000 from West Bromwich Mortgage Company plus 100% of legal costs and additional compensation on behalf of 6,200 private landlords via a Court of Appeal ruling, thus creating case law
A substantial amount of my recent caseload has been to help private landlords to optimally restructure their tax affairs

4. There is no ‘one-size-fits-all’ strategy
Example one:
Mr X is a 40% higher rate tax-payer and owns three properties
His spouse has no income
Using a Declaration of Trust we allocate the beneficial interest in the properties to Mrs X
Mrs X pays no tax on the first £11,700 of rental profit and just 20% on the next £33,500
As the “taxable income” for Mrs X remains below the higher rate tax band she is unaffected by the Government restrictions on finance cost relief

5. The Family Partnership Strategy
Example:
Mr & Mrs Y are both 40% higher rate tax-payers
They run four HMO’s between them, two of which they own and two are Rent-To-Rent deals
They have three children aged 18, 21 and 22 who are all students and have no income
The children do help to manage the HMO’s
A family partnership is formed, which enables disproportionate allocation of profits to ownership

6. Family Partnership Strategy continued
Rental profits are allocated to the children, who have no other income hence they pay minimal tax
Their incomes are all retained on the partnership balance sheet (save for the tax), hence their capital accounts grow
Mr & Mrs Y continue to draw the profits out of the business, thus reducing the value of their capital accounts
The outcome is significantly less income tax, Mr & Mrs Y are able to draw more from the business than previously and the reducing value of Mr & Mrs Y’s capital account is also reducing the value of their estate for IHT purposes

7. Mixed Partnership
A company is formed and appointed as “Managing Partner”
The Managing Partner Company charges a commercial rate of 15% of gross rental income to manage the partnership assets
Any more would fall foul of HMRC’s FA2009/S25 “Transfer of Income Scheme” rules
This reduces the partnership profits on which the partners would otherwise pay higher rate tax
The management company only pays 19% corporation tax on retained profits

8. Incorporation The Z Family Partnership now has 8 HMO’s
All partners are now higher rate tax payers
It is more tax efficient to restructure as a limited company
They transfer the ‘whole business’ into a company and roll capital gains into the shares created to acquire the equity in the properties
The value of the shares can be used to offset CGT using incorporation relief under TCGA92/S162
The company pays no Stamp Duty based on relief in FA2003/sch15
Cotswold Barristers has developed two HMRC compliant structures to enable advantageous mortgage arrangements to remain in place, i.e. refinancing is not required

9. Capital Account Restructure
Example:
The Z Partnership has minimal mortgage liabilities but incorporation is still very attractive to them for tax and other reasons
Prior to incorporating they take a very short term bridging loan to withdraw their capital account balances from their business
Soon after incorporation they lend the money they borrowed to their company, which then uses that money to repay the bridging finance novated to the company at incorporation
The company now owes a substantial amount of money in the form of Directors Loans to the former partners
The company repays the Directors Loans out of future company profits with no tax implications to the Directors

10. Becoming non-resident
Example:
Mark and Svetlana were considering selling their properties
Their concern was CGT because their business model had always been to refinance to raise money for new deposits
CGT would account for nearly all sale proceeds net of mortgages
By becoming non-resident they only pay CGT on capital gains made after April 2015

11. Combining these structures
EXAMPLE
Become non-resident and use the capital account restructure to maximise the Directors Loan Accounts post incorporation
When the company sells properties it uses the sale proceeds to repay the Directors Loans
The management company is also transferred into the new company, meaning that all profits it had previously retained can also be used to repay Directors Loan Accounts

12. Mark & Svetlana Alexander

13. Mark & Svetlana Alexander
Landlords since 1989
Founders of Property118.com and The Landlords Union
Have been living in Malta since Feb 2016
They are living testimony to all of the strategies outlined in this presentation

14. Initial Consultation Process
Proof of identity and money laundering checks
Fact Find ( based)
Bespoke report and recommendations via including quotes for implementation of recommended strategy
, telephone or Skype based Q&A as required
Client Care Letter and Terms of Business issued for legal work necessary for implementation of recommended strategy

15. Peace of mind
Fact find, analysis and initial recommendations are all dealt with via Property118 Limited
Cotswold Barristers check the recommendations made to ensure we are comfortable to adopt them as our own professional advice
Legal work is carried out by Cotswold Barristers

16. Costs Initial consultations £400 inc VAT
Counsel’s opinion on recommendations made by Property Limited is provided at no extra charge
Counsel is happy to join Skype Q&A sessions with clients of Property118 Limited and their professional advisers at no extra charge (subject to the initial consultation process having previously been completed)

17. NEXT STEP www.Property118.com/Tax
All initial consultations to be booked and paid for via

18. NOTE www.Property118.com/Tax
Green text in this presentation is linked to HMRC manuals or legislation, save for the link below which is to the Property118 website