PROSPERITY
PRIVATE CLIENT NEWSLETTER
WELCOME
Welcome to the latest edition of Prosperity.
The UK financial landscape has undergone some notable changes in the past few months, meaning that a well-informed approach to your tax and financial planning needs is more important than ever.
Whether you are a business owner, investor, or just seeking to optimise your tax and financial planning, this issue of Prosperity provides clarity around some of the key updates, offering expert insights and guidance to facilitate informed financial decision-making.
Notable events from the past few months include the Chancellor of the Exchequer presenting her Spring Statement in March. Whilst there were no significant tax changes, various thresholds and allowances have been frozen meaning that tax burdens remain high. It was also announced that there will be increased investment in HM Revenue & Customs for technology, to assist in the crackdown on tax evasion, as well as new compliance staff.
In May, the Bank of England cut the base rate of interest from 4.5% to 4.25%, which will affect savings, investments and mortgages. This was followed by the rate being held in June, however, further cuts are anticipated before the end of the year.
The above measure will impact us all so please do get in touch if you would like to discuss any of your tax and financial planning needs, or any of our articles – we would be more than happy, as ever, to help.
Lauren James Tax Director and Head Of Personal Tax
WHERE THERE IS A WILL THERE IS A WAY
The October 2024 Budget saw a fundamental change to Inheritance Tax (IHT). Prior to the Budget, owners of trading business operated on the understanding that unlimited amounts of Business Property Relief (BPR) were available, irrespective of the size or value of the trading business. However, on 30 October Rachel Reeves announced that with effect from April 2026, taxpayers’ ability to claim BPR will be limited. Taxpayers will now only be able to claim BPR at 100% of the first £1 million of qualifying assets. Above this value only 50% BPR will be available.
As a consequence of this, owners of trading businesses are going to be faced with much larger IHT bills than previously has been the case. The increase will be more pronounced the greater the size of the trading business. An example of the impact is given in the scenario below.
What is also important to note is that this £1 million allowance is not transferrable between spouses. As such, for married couples (or individuals in a civil partnership) it is important that wills are prepared that are “tax efficient”. This will then ensure that each party to a marriage (or civil partnership) uses their £1 million allowance rather than it being wasted. An inefficient will (or simple mirror will) is
Example
now unlikely to be as tax efficient as it once was.
As a result of the above, clients are well advised to review their wills to ensure that they make best use of their £1 million allowance. A tax efficient will may well save the client £200,000 of tax in certain circumstances.
Moving forward with “IHT on the rise” then there is, by definition, going to be less assets available to distribute between beneficiaries. Individuals need to consider which family members are going to “suffer” this IHT increase. This is of utmost importance where an estate might be divided between family members, some of whom inherit the “trading business”, and some of whom inherit “other assets” and who is receiving the residuary of the estate. Again, it is really important that business owners carefully consider the structure of their will to ensure that disasters are avoided.
Of course, a will is something that does need to be reviewed periodically. Clients often think “it’s OK, I have a will” but forget that life-changing effects such as marriage or divorce can have a real impact on any previous wills. As such, there is a real need to take professional advice.
Albert and Kate own a house worth £650,000. They also both own shares in their trading business worth £4,000,000 which qualify for BPR. They currently have simple mirror wills which leave their entire estate to each other on first death. On the second death the IHT position is as shown in the table below.
Paul Collings Tax Director
If you would like to discuss how the above could impact your IHT exposure, then please do not hesitate to get in touch with your usual point of contact.
paul.collings@albertgoodman.co.uk
THE IMPORTANCE OF STAYING INVESTED DURING STOCK MARKET VOLATILITY
The stock market is a dynamic arena, often reflecting the tremors of geopolitical and economic decisions. A striking example was the sharp decline observed after the United States, under Donald Trump’s administration, announced sweeping tariffs, sparking fears of a global trade war. Investors worldwide reacted to the uncertainty, leading to turbulent trading sessions and significant losses across major indices. Yet, as policies softened and the rhetoric around trade negotiations regained a conciliatory tone, the market began its steady recovery, underscoring a critical lesson for investors— staying invested during periods of volatility can often be the key to weathering short-term storms, as this article explains.
With investing, you often hear the phrase market volatility. Market volatility refers to the frequent and significant price fluctuations that occur in the stock market. These fluctuations can be triggered by various factors such as economic data, political events, changes in interest rates, or corporate earnings reports. While volatility can sometimes cause shortterm discomfort, it is a normal and inherent aspect of investing.
One of the key reasons to stay invested during volatile periods is the difference between short-term and longterm perspectives. Short-term market movements can be unpredictable and driven by sentiment or speculative trading. However, over the long term, the stock market tends to reflect the underlying fundamentals of businesses and economies. History has shown that despite temporary downturns, the market tends to recover and grow.
Trying to time the market - buying and selling stocks based on predictions of future movements - can be tempting during periods of market volatility. However, this strategy is fraught with risks. Even seasoned investors find it challenging to accurately predict market movements. By attempting to time the market, you risk selling at a low point and missing out on subsequent gains when the market recovers.
Staying invested allows you to benefit from the power of compounding. Compounding is the process where your investment returns generate earnings, which are then reinvested to generate more earnings. Albert Einstein referred to compounding interest as the eighth wonder of the world. Over time, compounding can significantly increase the value of your investments. Frequent buying and selling can interrupt this process and reduce your potential returns.
One effective way to manage risk during volatile periods is through diversification. Diversification involves spreading your investments across various asset classes, sectors, and geographical regions. By doing so, you reduce the impact of
any single investment’s poor performance on your overall portfolio. This strategy can help you weather market volatility more comfortably.
When the market is volatile, it is easy to lose sight of your long-term goals. Remember the reasons why you started investing in the first place. Whether it is saving for retirement, buying a home, or funding your child’s education, your longterm goals should guide your investment decisions. Staying focused on these goals can help you stay committed to your investment strategy during turbulent times.
Seeking professional advice can be invaluable when navigating market volatility. Financial advisors have the expertise and experience to help you make informed decisions that align with your goals and risk tolerance. They can provide you with a tailored investment strategy and offer reassurance during uncertain times.
Looking at historical data can provide valuable perspective during volatile periods. The stock market has experienced numerous ups and downs, but it has consistently recovered and grown over the long-term. For example, despite significant downturns such as the Great Depression, the dotcom bubble, the 2008 financial crisis and early on during the Covid pandemic, the market has rebounded and continued to grow. Understanding this historical resilience can help you stay calm and confident in your investment strategy during the current period of volatility.
Staying invested during stock market volatility is essential for achieving long-term financial goals. By maintaining a long-term perspective, avoiding the pitfalls of market timing, and benefiting from the power of compounding, you can navigate volatile periods more effectively. Diversification, professional advice, and historical perspective are key factors that can support your investment strategy. Remember, the stock market’s inherent volatility is a normal aspect of investing, and staying committed to your strategy can lead to financial success in the long-term.
Investing is a journey, and patience and perspective are your greatest allies. Stay the course, and trust in the process.
THE HIDDEN COST OF FEES:
WHY KEEPING INVESTMENT CHARGES LOW MATTERS
When it comes to investing your hard-earned money, the importance of minimising costs and charges cannot be overstated. Even seemingly small differences in management fees can lead to significant long-term savings and improved outcomes for your financial goals. This article explores why keeping costs low matters, illustrates the impact of charges on a £100,000 investment over 10 years, and demonstrates how a solid financial plan focused on controlling the controllables can pave the way to success.
Investment charges, such as fund management fees, advisory costs, and platform charges, directly reduce the returns on your portfolio. While these fees may seem negligible at first glance, their cumulative impact over time can make a substantial difference to your final investment value.
Let’s take an example: a £100,000 investment for 10 years at an annual charge of 1.4% compared with 2.0%. Saving just 0.6% on charges may not seem groundbreaking, but the maths tells a different story. Over time, the benefits of lower costs compound, contributing to significantly higher portfolio growth.
Let’s break it down with numbers. Assuming a consistent annual return of 5% before charges:
At a 2.0% annual charge: After 10 years, your investment grows to approximately £134,391.
At a 1.4% annual charge: After 10 years, your investment grows to approximately £142,428.
The difference? A remarkable £8,037 saved simply by opting for lower-cost investments. This sum could be the foundation for further investments, holidays, or even a safety net for your family.
The value of your investments can go down as well as up, so you could get back less than you invested
Over a 20-year horizon, the disparity becomes even more pronounced. The portfolio with 1.4% charges grows to £198,374, while the one with 2% charges reaches just £180,611. That’s a gap of £17,763 – money that could have been reinvested or spent elsewhere rather than lost to high charges. The disparity grows even larger over longer time horizons. Charges eat into your returns in two ways: directly, through the fees themselves, and indirectly, by reducing the amount available to compound. This means that over decades, the cost of high fees can snowball into tens of thousands of pounds – or more.
Why does low-cost investing matter? It empowers individuals to take control of the variables within their financial reach. While market performance cannot be controlled, choosing investments with lower fees is entirely within your grasp. By reducing charges, you retain a greater portion of your returns, allowing your money to work harder for you.
Beyond reducing costs, working with a Financial Planner to create a solid financial plan is essential for ensuring longterm success. This includes:
Setting clear financial goals: Understand what you want to achieve, whether it’s saving for retirement, a major purchase, or building wealth.
Diversifying your portfolio: Spread your investments across different asset classes to manage risk effectively.
Regularly reviewing your investments: Stay informed and make adjustments when necessary to align with your objectives.
Low-cost investing coupled with a well-thought-out financial plan can lead to good outcomes over the long-term. By prioritising what you can control—like fees and charges— you position yourself for steady portfolio growth and financial stability. Remember, the decisions you make today will shape your financial future. Control the controllables, and let your investments flourish.
The article above is written for information only and does not constitute advice, with all investments, the values can go down as well as up, so you could get back less than you invested.
Reme Holland Partner - Albert Goodman Financial Planning reme.holland@albertgoodman.co.uk
PERSONAL PENSION CONTRIBUTIONS
With the current freezes in income tax rates and bands it is worthwhile remembering that making a personal contribution into your pension can be a very efficient way to reduce your tax liability.
When an individual makes a Personal Pension Contribution (PPC), they benefit from an extension of their basic and higher rate tax bands. This means more of their income is charged to tax at a lower rate. It also reduces their Adjusted Net Income (ANI) which is calculated using an individual’s total taxable income less any gross PPC and/or gross gift aid donations.
An individual can make gross pensions contributions of up to £60,000 per tax year, if they have sufficient Net Relevant Earnings (NRE). Unless they are a high earner, in which case their annual allowance could be restricted to a minimum of £10,000. There may be available allowances from the previous three tax years to utilise also. If you do not have sufficient NRE, you can still make an annual gross personal pension contribution of £3,600 (£2,880 net).
A high earner for these purposes would be an individual with ‘threshold income’ (income less any personal pension contributions) above £200,000 and ‘adjusted income’ (taxable income plus any employer pension contributions) of more than £260,000.
If your ANI exceeds £100,000, your personal allowance begins to be tapered and is fully restricted once your income exceeds £125,140. Therefore, income falling between £100,000 and £125,140 is taxed at an effective rate of 60%. A PPC could therefore preserve more of your tax-free allowances as this would reduce your ANI.
If you or your spouse/civil partner are subject to the High-Income Child Benefit Charge (HICBC), and your income is near the relevant thresholds, a PPC reduces your ANI as mentioned above, and is therefore taken into account before calculating any potential repayment of child benefit.
If you would like to look at how making a personal pension contribution could reduce your tax liability, then please don’t hesitate to get in touch with your usual point of contact.
We would also always advise that you seek advice from a financial advisor before making the contribution and our financial planning team would be happy to help review your position.
Billy Whitehead Tax Senior
SMALL CONSIDERATIONS TO LESSEN YOUR POTENTIAL IHT POSITION
As you will be aware, the changes announced during the Autumn Budget have significantly impacted Inheritance Tax (IHT) planning for many taxpayers. With the legislation surrounding this change not having been finalised yet, it leaves many people in a state of uncertainty. Usually, gifts made in the seven years before your death could be liable to IHT, however, there are some gifts that are exempt, which may be useful for you to consider when it comes to IHT planning.
Annual Exemption
Each tax year, every individual has an annual exemption of £3,000, allowing you to give away gifts totalling this value without an IHT impact. Additionally, you are able to bring forward any unused allowance from the previous year meaning you could be entitled to make up to £6,000 of taxfree gifts this year.
Wedding Gifts
If someone you know is getting married this year, you can make a tax-free gift, with the amount dependent on your relationship with the recipient. For marriage gifts to your child, you’re able to make up to £5,000, for a grandchild or great-grandchild it is £2,500, and £1,000 for any other person.
Small Gifts
Gifts of up to £250 per person are allowed each year, with no limit as to how many people you can make these gifts to. The only stipulation is that you cannot make this gift in conjunction with any other gift allowances on the same person. On top of this, there is no maximum limit for birthday and Christmas gifts.
Gifts to Charity
It is worth considering that any charitable donations you make in your will are taken off the value of your estate before inheritance tax is calculated, and where 10% of more of your estate is left to charity the tax rate will be
reduced from 40% to 36%. Alternatively, if you wish to make donations to charity before this, you are able to do so tax free.
Gifts out of Income
There is no limit to the amount you can gift another person so long as the money comes from your regular monthly income, provided you are able to afford these payments after having met your usual living expenses. It is always recommended that you keep good records and evidence of these gifts to try to prevent any challenge from HMRC on your estate.
Spouse Exemption
Upon gifting to your spouse, no inheritance tax is incurred, applying to gifts during lifetime and upon death.
Overall, there are many options available for you to consider when it comes to reducing your IHT liability. Due to the new £1 million cap on Agricultural Property Relief and Business Property Relief, as well as the future inclusion of pensions into your estate from April 2027, you may find these small considerations helpful to start to reduce the total of your estate.
If you wish to make use of these gifts it is always recommended that you keep good records and documentary evidence to avoid any uncertainty for you executors calculating your IHT position.
If you would like more information regarding exempt gifts, or other inheritance tax advice, please do not hesitate to get in touch with our team.
Shannon Stock Tax Technician
MAKING TAX DIGITAL FOR INCOME TAX –WHAT SHOULD I DO NOW TO PREPARE?
The Making Tax Digital for Income Tax (MTD IT) regime is one of the biggest changes to the tax system in many years and fundamentally changes how taxpayers interact with HMRC.
As HMRC have started writing to taxpayers about the Making Tax Digital for Income Tax rollout, we wanted to give a brief refresher on what it is, when it starts and who it affects, before covering what practical steps you should be taking now to prepare!
So, what is MTD IT?
The MTD for IT regime is the new way that taxpayers will need to keep and submit their records to HMRC. It is a requirement to keep, maintain and submit digital records to HMRC. Paper records will no longer suffice.
Those taxpayers who are affected will also change from submitting one annual self-assessment tax return to submitting four quarterly updates to HMRC as well as one annual final declaration.
When does it start and who does it affect?
The regime will be mandated from 6 April 2026 and rolled
out in 3 tranches:
From 6 April 2026 - sole trade businesses and landlords with qualifying income over £50,000 are required to register and comply.
From 6 April 2027 - sole trade businesses and landlords with qualifying income over £30,000 are required to register and comply.
From 6 April 2028 - sole trade businesses and landlords with qualifying income over £20,000 are required to register and comply.
It is important to note that qualifying income is based on the combined income (not profits) from sole trades and property only. Other income sources such as employment, pensions, interest on savings or anything else for that matter will not count as qualifying income.
How are HMRC judging who will be affected?
HMRC will be using the submitted tax returns for the tax year ending 5 April 2025 when assessing whether a taxpayer is mandated to use the MTD IT regime.
The deadline for filing these tax returns is 31 January 2026,
leaving very little time for the next steps should you chose to file your tax return near the deadline. The next steps are:
Sign up to MTD for IT with HMRC
Provide authority to your agent (e.g. Albert Goodman)
Transfer your records onto MTD compatible software
Link this software to your agent’s platform
Start keeping your records digitally on the new software
Practical Steps – What should I do now?
1. Talk to an advisor that understands the MTD for IT regime – at Albert Goodman we are working with HMRC and leading software providers, and are ensuring that we stay at the forefront of this change, so please get in touch if you need any help.
2. Prepare and submit your tax return for the year ending 5 April 2025 as soon as possible – Don’t wait until the end of the tax year to do this!
Preparing your tax return now will help you to understand your qualifying income for the year of assessment. In turn, this will enable you or your agent to carry out many of the preparatory steps in advance. Also, contrary to many opinions, you don’t have to pay your liability as soon as its filed. You are well within your rights to submit now and pay just before the usual deadline.
3. Ensure you have a dedicated business bank account for each type of business – Doing this will dramatically reduce admin time when it comes to keeping digital records. It will also allow you to receive the admin
benefits that automation provides.
As an example, an individual with a sole trade business and a rental property will ideally have a dedicated business bank account for each business.
4. Get into the habit of completing your bookkeeping on a regular basis – MTD IT will require quarterly submissions and the time between the quarter ending and the submission deadline can be as small as one month and two days! Therefore, regular record keeping will maximise this filing window and make the process much less daunting.
5. Consider being part of the Beta Testing Phase – at Albert Goodman we are part of the MTD IT Beta testing phase. This allows us to work with HMRC to test and have a say in how the regime will work. Being part of the testing phase will help you understand exactly how this will work and set you up nicely and ahead of the game!
Please reach out to your regular contact at Albert Goodman should you wish to be part of this or have any queries regarding any of the above.
Katie Hodge Senior Tax Manager
UK INHERITANCE TAX: LONG-TERM RESIDENCE AND THE IMPLICATIONS
From 6 April 2025, the UK’s Inheritance Tax (IHT) regime underwent a significant transformation, moving from a domicile-based system to one centered on tax residency status. This change marks a fundamental redefinition of who is liable for UK IHT and introduces new complexities for both UK residents and expatriates.
The End of Domicile-Based Taxation
Historically, exposure to UK IHT was determined by an individual’s domicile status. Broadly, domicile can be defined as the country that a person treats as their permanent home, or lives in and has a substantial connection with.
Non-UK domiciled individuals were generally only subject to UK IHT on UK-situated assets, with overseas assets excluded unless the individual was ‘deemed domiciled’ (resident in the UK for at least 15 of the previous 20 tax years).
From April 2025, this framework was replaced. The new rules introduced the concept of a Long-Term UK Resident (LTR), defined as someone who has been UK tax resident for at least 10 of the previous 20 tax years. Once classified as an LTR, an individual becomes liable for UK IHT on their worldwide assets, regardless of domicile status.
Implications for Long-Term Residents
For individuals meeting the LTR criteria, the scope of IHT expands significantly. Transfers of overseas assets— whether during lifetime or on death—will now fall within the scope of UK IHT. This includes assets held outright and those settled into trusts, even if the trust was established while the individual was non-UK domiciled.
The ‘Tail’ of Residence
The IHT reforms also introduced a “tail” period: being the duration for which an individual remains within the scope of UK IHT after ceasing to be UK resident for tax purposes. The tail length varies based on the length of prior UK residence.
If an individual has been UK tax resident for between 10 and 13 out of the last 20 tax years, then they will have a 3-year tail. The tail length then increases by one year for every additional year of UK residence. For those who have been UK tax resident for 20 years or more, the applicable tail period is 10 years.
This graduated approach means that individuals who leave the UK may still be liable for UK IHT on overseas assets for up to a decade after leaving, depending on their prior residence history.
Strategic Considerations
These changes necessitate a reassessment of estate planning strategies, particularly for internationally mobile individuals. Key considerations include:
Monitoring UK residence years closely
Consider IHT implications and scope in other countries
Considering the timing of asset transfers and emigration
Reviewing trust structures and settlor status
In summary, the 2025 IHT reforms represent a paradigm shift. The move to a residence-based system aligns the UK more closely with global norms but introduces new planning challenges.
Please do get in touch if you would like any assistance or have any questions regarding the above.
Lauren James Tax Director and Head Of Personal Tax lauren.james@albertgoodman.co.uk
MORTGAGE MARKET UPDATE
The UK mortgage market is currently navigating an evolving landscape. While some lenders are offering rate reductionsparticularly aimed at supporting first-time buyers - others are edging their rates upward in response to continued economic uncertainty. This reflects the backdrop of macroeconomic events shaping the financial outlook across the globe.
In May 2025, the Bank of England reduced the base rate from 4.5% to 4.25%. This move follows signs of softening inflation and slower-than-anticipated economic growth. The International Monetary Fund (IMF) recently downgraded the UK’s growth forecast, fuelling speculation that further base rate reductions could be on the horizon if inflationary pressures continue to ease.
In June 2025 the base rate was held at 4.25%, however, markets currently predict one or two further rate cuts this year. This suggests the base rate could reach as low as 3.75% by the end of the year, depending on how inflation behaves and whether consumer spending continues to weaken. While the Bank of England remains cautious and data-driven in its approach, a gradual easing of rates seems likely if current economic trends persist.
Lenders, in turn, are adapting their product offerings. While global trade tensions and supply chain challenges have added layers of complexity, many banks and building societies are competing for mortgage customers by reducing their fixedrate deals. Some lenders are now offering fixed rates below 3.90% for borrowers with a 40% deposit, which is a welcome opportunity for those with strong equity positions.
However, for borrowers with smaller deposits - such as those with 5% to put down - rates remain higher, averaging around 4.75%. This disparity continues to make affordability a key consideration, especially for younger or first-time buyers trying to get onto the property ladder.
Overall, the outlook for borrowers is cautiously optimistic. Should additional base rate cuts materialise in 2025, mortgage rates are likely to fall further, offering potential savings to new applicants and those approaching the end of their fixed-term deals.
We have continued to see strong lender appetite in certain segments. Many lenders are introducing innovative products, including green mortgages and incentive-led deals for energy-efficient homes. These products can offer more favourable terms - or cashback options – which will appeal to some clients.
In this evolving environment, bespoke mortgage advice is more important than ever. Whether you’re a first-time buyer, moving home, or considering a remortgage, understanding your affordability, and exploring the full range of available options, will help ensure your mortgage supports your wider financial goals.
At Albert Goodman, our mortgage team works closely with individuals and families to navigate the ever-changing mortgage market. We’re here to support you with all your mortgage requirements.
The mortgage rate figures quoted in this article are correct at the time of publication. This content is for information only and does not constitute advice.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Lorraine Balcombe Mortgage Consultant lorraine.balcombe@albertgoodman.co.uk
OWNING PROPERTY – THROUGH A COMPANY VS HOLDING PERSONALLY
We often get asked, “I’m thinking of purchasing a buy-to-let property, is this better to buy personally or through a limited company?”
Unfortuntely, from a tax-efficient perspective and as a result of all the changes in recent years, this is no longer as clear cut as it once was. It really depends on the rental income you expect to receive and how much of the cash you require to support your income, along with factors such as your other income sources and if you are using a mortgage to purchase the property.
On top of that, you also need to consider commercial factors as to why you may prefer to hold property in your individual name or through a company, and of course lending requirements.
Firstly, from an income tax perspective, if property is held in your own name, you are taxed at the income rates of 20/40/45% on your profits generated in that year. Profits arising on property held within a company, will be taxed at the corporation tax (CT) rates, which in most cases will be 25%, but for smaller companies, who meet the threshold, you are taxed at 19%.
You will also be liable for income tax rates when you then extract the profits from the company as a dividend and charged at rates of 8.75%/33.75%/39.35%, based on the level of your other income. Therefore, if you pay income tax at basic rates, holding property personally would generally be the ‘cheaper’ option from an income tax perspective, as a lower rate of tax would be paid overall.
Any expenses incurred wholly and exclusively for the rental business are deductible under both ownership structures, except for mortgage interest and finance charges. If the property is held in a limited company, then a full deduction is an allowable expense and therefore reduces the profits chargeable to tax. However, if you hold the property personally, any mortgage interest is not allowable as an expense against the rental income, but instead you would receive relief as a tax reducer. This is capped at 20% relief on finance charges, that reduces your tax liability. If you therefore pay income tax at higher rates, then you will still only obtain relief at 20% and not your usual marginal rates, so a company may be more advantageous.
From a Capital Gains Tax (CGT) perspective, if you held the property individually, you would pay CGT on the gain on disposal at a maximum of 24%, with the possibility of part of the gain being at 18% if you have any remaining basic rate band in the year of disposal. You also have an annual exemption, currently £3,000 per year, to use against your net gains. For property held in a company, the gain would be liable to CT at the same rates as mentioned above (25%, with possibility of 19%), however companies do not receive an annual exemption.
If you are planning on growing a property portfolio, then it may be more beneficial for property to be purchased in a limited company for future planning and looking ahead to your objectives. This would hopefully prevent any duplication of Stamp Duty Land Tax (SDLT) which can often prove very expensive.
It is also worth noting that limited companies holding residential properties could also be liable to an annual tax under the ATED (Annual Tax for Enveloped Dwellings) if the property is worth more than £500,000. There are certain reliefs that can be claimed, depending on if the property is rented out to a third party etc, but annual reporting would still be required to claim the relief.
There are many other factors to consider, including the reporting requirements for each structure and the administration burden and costs of running a limited company. There is also the extraction of profits to consider,
and whether you require all the profits generated to support your income or would be planning to leave part of the profits within the company to avoid an unnecessary income tax charge.
Together with your preferences to risk and whether the limited liability that a company would provide is the main factor to consider for you, all aspects need to be deliberated, not just the most tax efficient structure. This coupled with lending requirements, which are often more expensive and difficult to obtain for new companies who do not have any financial history.
For a limited company to secure a mortgage, the borrower must be registered in the UK as a limited company, as LLPs and partnerships don’t qualify. Many lenders prefer Special Purpose Vehicles (SPVs) set up solely for property, though some will accept trading companies.
Lenders will ask for personal guarantees from the company directors, who usually need to be the majority shareholders. Typically, no more than two people holding over 20% of the shareholding each. Any changes to the company’s structure must be reported to the lender.
There is a benefit of reduced personal exposure. While guarantees are common, company debts will often remain separate from directors’ personal assets, and funds loaned to the company can often be repaid with low tax impact.
From the points above, you will see there is now no longer a “one size fits all” approach, each situation is different and needs to be assessed on a case-by-case basis. Therefore, if you are considering purchasing property and aren’t sure if you are best to own this personally or through a company then do please get in touch and we can assist you in looking how the ownership of the property should be structured to meet your aims and objectives. Our experienced advisers can also guide you through the process and help secure the right mortgage for your goals.
Katie Hodge Senior Tax Manager
katie.hodge@albertgoodman.co.uk
TRUSTEES NEWSLETTER SUMMER 2025
Welcome to the latest edition of the Trustees Newsletter where we look at the recent Inheritance tax (IHT) changes affecting trusts, outline how Bare Trusts work and what they are and things to consider when winding up a trust.
RELIEF FOR BUSINESS PROPERTY RELIEF (BPR) AND AGRICULTURAL PROPERTY RELIEF (APR)
Big changes are coming for trustees when it comes to BPR and APR relief from April 2026 and future ten year and exit charges. There is a reduction in relief down to £1m at 100% and the remaining BPR/ APR property at 50%. Where trusts previously had no tax to pay on a ten-year charge, they may now need to plan for an unexpected tax charge. The rules are not yet finalised making it tricky for trustees to make firm decisions. Check out our article giving more details.
WHAT IS A BARE TRUST?
We frequently get asked about bare trusts as there seems to be a lot of confusion over this type of arrangement.
A bare trust is a simple arrangement where a trustee holds assets on behalf of a beneficiary. That beneficiary has absolute ownership rights whilst the trustee is the legal owner. Once named, beneficiaries cannot be changed or removed, and they can demand the assets at any time if they are over 18. The trustee’s role is purely administrative, with no control over asset management.
Bare trusts are commonly used to hold assets for minors until adulthood. For tax purposes, the beneficiary is treated as the asset owner, meaning they are responsible for any tax liabilities, including income tax on earnings like dividends or rent and capital gains tax (CGT) on asset sales, using their personal allowances.
Unlike some other trusts, bare trusts do not qualify for holdover relief, which allows CGT on gifted assets to be deferred. Some bare trusts do need to register with the HMRC Trust Registration Service.
WINDING UP TRUSTS
It is important for trustees to continually review their trust and whether it should continue or whether it has come to the end of its useful life. However, bringing trusts to an end needs careful planning.
Trustees will need to check the governing trust document to establish how the trust can be brought to an end and who are the resulting beneficiaries.
Tax needs to be considered as there maybe CGT and IHT implications. There may also be income tax to consider if there is an existing tax pool (income tax paid or suffered by the trustees and not yet matched to a beneficiary distribution) and the opportunity for this to be utilised on an income distribution, before the trust is wound up.
There are final tax returns to be dealt with and trustees will need to consider if any appropriate indemnities are required from the beneficiaries if assets are being sold by the trustees and cash transferred or if assets are being transferred in specie. It may be the case that the recipient beneficiary needs to understand their own tax position.
If you need any assistance or advice on any of the topics above (or any other trust related matters) then do contact a member of the trust team.
Ruth Powell Director - Trusts