Tax efficient transfer of 200+ properties, saving £5.7 million of tax on transfer

Case Study » July 2, 2021

Problem: We were approached by two sets of solicitors each representing their clients, Raj and Kylie, in divorce proceedings.  The total asset pool was over £40,000,000 and both parties wanted to complete the asset transfers in the most tax efficient way possible.

It was agreed that their portfolio of 200+ investment properties, was marital property, to be split equally but there were the following issues:-

  • for the transactions to be exempt from capital gains tax, they would have to take place within 12 weeks of our instruction;
  • Raj legally owned 180 of the properties most of which were mortgaged and it was not possible to complete mortgage transfers on 80 properties in a few months; 
  • any early transfers would incur a mortgage penalty;
  • Raj and Kylie had previously advised that they were running a property trading partnership which has different tax treatment to an property investment business;
  • the properties could be valued on their market value, net value or their investment value (ie. a value taking into consideration the amount of rent the property would receive).

Solution : We set up a round table meeting with both sets of solicitors to discuss the roadmap to a solution.  During the initial meeting, we set out the capital gains tax liability, if the clients were not able to make the transfers before 5 April and explained why other reliefs were not going to be suitable in this case.

We reviewed the particulars of the case as well as the properties, and delivered an interim report. This report gave a definitive answer as to the actual nature of the business and set out three valuation options for the properties.

This report was considered by the parties.  The clarity of the report allowed them to make decisions as to how the portfolio was split. We also addressed the pressing issue of the mortgage transfers and created a solution to enable the transfers to take place by 5 April.

Our final report included a summary of the decisions made by the parties, the taxes payable (nil) and the next steps moving forward. 

Outcome: We worked collaboratively with both sets of instructing solicitors to try and effect a solution that would enable the clients to complete the transfers within the tax year, thereby saving approximately £5,700,000 in capital gains tax from being payable immediately on transfer.  The tax will still become payable in the future when Raj and Kylie sell their properties.

Raj and Kylie’s divorce was not acrimonious and there was a joint desire to minimise the potential £5,700,000 tax liability.  By listening to the obstacles that Raj and Kylie were facing, we were able to deliver clear, actionable and practical advice to enable them to divide the most valuable assets in the marriage. 

Please note: Raj and Kylie are pseudonyms

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