We all have our own plans and intentions for the properties we purchase. However, be it for personal or business purposes, there are a variety of options available when it comes to how we own such assets.
Placing your property investment(s) into a suitable ownership structure can offer a number of benefits such as asset protection, effective tax planning (including inheritance tax), incapacity protection, enhanced confidentiality, wealth preservation and the ability to hold greater control of the asset.
Before deciding on how to structure ownership, there are a number of things you need to do – you should weigh up the pros and cons of the options available, seek the appropriate professional advice and engage a professional service provider to assist you in establishing the structure chosen.
The type of ownership structure used will vary considerably depending on the type of property and the intended use (i.e. a family home, holiday let, second home, holiday home, buy to let portfolio, rental property or commercial property).
It is vital that the chosen structure is fit for purpose and aligns with your long-term strategy. So, prior to selecting a structure you should consider:
• Will anyone reside in the property?
• How long will you own the property?
• How important is asset protection?
• What do you wish to happen with the asset upon your death?
There are a number of ways in which you can structure ownership of a property. We have highlighted some of the more common methods and why you might wish to use them.
Individual Ownership/Proprietorship – This is a common approach where a single person wholly owns the asset outright in their own name. It can be beneficial in terms of eligibility for Capital Gains Tax (CGT) exemptions or discounts however, it doesn’t offer protection should you be personally sued or determined bankrupt.
Joint Ownership – When an asset is jointly owned by two individuals and one of them dies, the share is immediately passed to the surviving owner who will have immediate use of the asset. Joint ownership provides certainty and assurance that the asset will be automatically passed to the surviving owner, generally without delay.
Tenancy in Common (TIC) Ownership – This is where two or more persons hold the title to a property jointly or in varying percentages of ownership. Each ‘owner’ may have the right to a distinct proportion of the asset, which will be set out and determined. On the death of an owner, their share does not automatically pass on to the other owner(s), it passes to their beneficiaries in accordance with their will or intestacy. However, it may be that in their will, the living owner has the right to occupy and have access to the property in its entirety until such a time that they die or sell the property.
Company Ownership – A corporate structure can be the most appropriate vehicle if you are considering buying an investment property. The company becomes the ‘legal owner’ of the property opposed to the individual (albeit they may be the shareholder).
Trust Ownership (Discretionary/Family Trust) – A property can be settled into a trust, where it will be held and managed in accordance with the trust deed for the benefit of its beneficiaries. The trust deed sets out the obligations of the trustee(s) and determines what happens to the property upon a person’s death.
Many use trusts to hold property for the purpose of effective inheritance tax planning, particularly if it is an investment property, if the intended owner is under 18 years of age, or if the trust will provide for a disabled dependant in the future.
Partnership Ownership – A property partnership is a way of holding and managing an investment property effectively where at least two people will carry out business with a view to making profit.
There may be an appointed ‘sponsor’ or ‘managing member’ who serves as the ‘General Partner’ to enable investors to take a back seat. The terms of the partnership will be set out in the partnership agreement but a property held in a partnership may only be distributed to partners after all liabilities, taxes and debts are fulfilled.
Are looking to invest in property but unsure how to structure ownership? Do you have an existing property investment for which you wish to re-evaluate the current ownership structure?
Our team can work with you and your advisors to develop and establish a bespoke solution tailored to your individual needs and objectives, ensuring that it is fit for purpose and yields success.
Contact us on +44 1624 616544 or email firstname.lastname@example.org to find out more.