Ormsby & Rhodes

Property Restructure

A common theme of the boom was that many property investments were made personally, with a plan to realise the expected capital appreciation at historically low personal Capital Gains Tax rates of 20%.  This position contrasted with where property was acquired by a company, where usually there was a double tax charge on the eventual sale.

Over the last few years, many business owners, who borrowed heavily to invest in property personally, continue to experience financial difficulties.  The fact that the cash flow and wealth of these business owners was tied up in their company did not deter the banks in the boom times from providing the finance.  In many situations, those individuals are now in severe negative equity whilst continuing to run a profitable on-going business.  These individuals are finding that their non-property assets are now at risk as the bank seeks to recover the debt due to it.

Often, personal property loan repayments were funded by rental payments from the trading company, with the individual able to claim a deduction for the interest element of the loan repayment against these rents.  As such, it was only the unrelieved capital element that was subject to ever increasing high rates of personal tax.

Given the continuing economic difficulties, many investors are now actively seeking opportunities to restructure their affairs so that the capital element can be funded in a more tax efficient way and also that corporate cash reserves can be accessed in order to pay down debt.  We are currently advising a number of clients on the options available to them and the related tax reliefs available to achieve same.