Case Study: A £4m Property Portfolio Incorporated and Placed Inside a Blended Family Investment Company

The client

Our clients were a married couple who ran a full-time property business and, alongside it, a small separate business. Their portfolio held 18 properties worth around £4m, with no borrowing against any of them. It was made up of single lets, houses in multiple occupation (HMOs) and holiday lets, and it produced rent of about £140,000 a year, shared equally between the two of them. We carried out the work in 2024.

The challenge

The couple had three concerns, and they were connected.

• Inheritance tax. On the rules at the time, a £4m portfolio owned personally would make up a large part of both estates, and every pound of future growth would be added on top.
• Income tax. Their rent was taxed at the higher rate. They also wanted to borrow to buy more property, and borrowing in their own names would have been caught by the restriction on mortgage interest relief for individual landlords.
• Growth. They did not want a structure that merely preserved what they had. They intended to keep investing, and they wanted the next generation to share in the result.

A Family Investment Company (FIC) can only hold a portfolio once the portfolio is inside a company, and moving property into a company can bring capital gains tax and stamp duty land tax (SDLT) at market value. So the first task was to get the properties into a company without those charges arising.

What we did

Stage one: a partnership, then incorporation. The couple had operated the property business as a partnership since 2022, and it was incorporated in 2024. Incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992 deferred the capital gains tax on the transfer. Partnership relief meant that no SDLT was payable on it.

Stage two: designing the family structure from scratch. With the properties held by a company, we started with a blank sheet and built the structure around what the couple wanted: to stay in charge, to let their children share future growth, and to keep options open for later generations. The answer was a blended FIC, with these elements.

• Freezer shares for the couple. Their capital entitlement was fixed at the company's value on the day the shares were issued. They kept the votes, so they remained in control of the company and its investment decisions.
• Growth shares for the children and for a discretionary trust. These were newly issued rather than converted from existing shares, so no deemed disposition arose from a conversion. They take the increase in value above the starting figure. Because that starting value was low, very little value left the couple's estates when the shares were issued.
• Separate classes of share. Alphabet shares allow dividends to be paid to particular shareholders without relying on dividend waivers, which HMRC can challenge.
• An in-house valuation. Our team valued the freezer and growth share classes at the point they were created.
• Non-statutory clearance from HMRC. We applied for this before the couple committed to the structure.

The legal documents were prepared at the same time as the tax work, and the whole project took under two months.

Why the inheritance tax logic holds

The design depends on where future growth ends up.

• Growth builds outside the couple's estates. Any rise in the company's value above today's figure belongs to the growth shares held by the children and the trust, so it does not add to the value of the couple's own shares.
• The frozen value stays in their estates. The couple's freezer shares keep a fixed value, and that value remains part of their estates. The structure does not take existing wealth out of the inheritance tax net. It limits how much more is added.
• Shares given to the children start a seven-year clock. A gift of shares to an adult child is a potentially exempt transfer, free of inheritance tax if the donor survives seven years.
• The couple cannot benefit from the trust. They are irrevocably excluded, which helps avoid a gift with reservation of benefit.
• The trust adds flexibility. Trustees of a discretionary trust can direct the shares to whoever needs them, including future generations, and their control can help protect the shares if a beneficiary divorces or becomes insolvent. We say "help protect" because family courts and insolvency rules can reach trust and company interests in some cases.
• The trust has its own inheritance tax regime. Settling shares on a discretionary trust is a chargeable transfer when it happens, and the trust then falls under the relevant property regime. As the growth shares were worth little at settlement, the entry charge and the early exit charges are expected to be low. The price of this is that the trust is charged on its value at each ten-year anniversary, at up to 6%, so those charges will grow as the shares grow.

The outcome

• About £300,000 of SDLT avoided on moving the portfolio into the company.
• About £600,000 of capital gains tax deferred under incorporation relief. This is a deferral and not a saving, because the gain is carried into the base cost of the new shares.
• Income tax saved of more than £25,000 a year, an actual saving seen since 2024, compared with the couple remaining personal owners. The company can also borrow to expand without the restriction on personal interest relief.
• A share structure built to help protect the family's wealth across generations. The couple keep control through their freezer shares, while future growth accrues to the children and the trust.
• Delivered in under two months.

These figures belong to this family. Another family's position will turn on its own assets, history and aims, and no result is guaranteed.

If you hold a property portfolio and want to know whether a similar route could work for you, book a call with our team. Our advice is prepared by our specialist team and reviewed by a Chartered Tax Adviser.

To explore Family Investment Companies further, visit our specialist practice, Family Investment Company.