The idea of home ownership in the UK is ingrained in the status quo of human progression aligning itself with the necessity for a good job, marriage and children. Although, some may find life much easier without the latter two!
With that said, this post will not go on to criticise Jeremy Corbyn for his recent comments regarding inheritance tax, nor shall I attack the conservatives for their actions relating to buy-to-let property. Rather this post will discuss the opposite of buy-to-let investment…Property development, and how this might be structured.
The property market is a relatively safe investment. Home ownership took off during Margret Thatcher’s 15-year reign over the conservative party, and although I am but a humble 21-year old university graduate / tax adviser trainee, I suspect this idea of home ownership might have prompted those late century entrepreneurs to move towards property development.
Fast forward to the present where the residential market is saturated to the point that it is near impossible for someone of my age to step onto the property ladder, that is without help from the bank of mum and dad. At my age, my parents were looking to invest in buy-to-let property…I’d be lucky to have my name on a tent written in black sharpie, let alone the deeds of a house.
Anyway, with the subtle hints that buy-to-let investment may not be as worthwhile as in our parents’ generation (or mine at least) coupled with the housing crisis we currently face, we might expect more activity in the property development industry. Despite the greater commercial risk, it is no doubt that investors will find some comfort in the fact that supply of residential property is not meeting demand.
As with any business venture, consideration should be taken as to how you might structure said venture. We often advise such developers and the general format is as illustrated below. However, as with anything, a suitable structure will be formed with consideration to the circumstances and intentions of those involved.
A few of the benefits of such a group structure include:
- Creating a new subsidiary for each development dissolves any commercial risk associated with that development. A company is unlikely to be reinstated for the purposes of a legal claim or dispute. This is generally the case, except where fraudulent activity has occurred.
- Once the development is completed one has the choice to either dispose of it or retain it.
- Where one disposes of the development the profits can be transferred to the holding company and either reinvested in a new development, retained or distributed to the shareholders.
- Should one decide to retain and/or let the property it may be transferred into a subsidiary company established for the purposes of operating a lettings business efficiently of tax.
- Other closely held trading or investment companies may be brought within the group. This allows funds from the development activities to be utilised in these other companies or vice versa efficiently of tax.
The above is a standard model for property development structuring. The aim should be to create a structure that meets your requirements and goals in an effective and efficient manner. If you are interested in property development, be It commercial, residential or both, please do get in touch to discuss your options.