A development ready to finish - but not structured to move forward
Like many development projects, the company structure had been built around the construction phase rather than the long-term strategy.
All assets sat within a single development entity. The expectation was that extracting funds or retaining properties would likely trigger significant tax liabilities.
In fact, the owners believed that keeping the assets could leave them facing tax charges in excess of £1 million.
At the same time, they were trying to solve several practical challenges:
Exiting the development finance facility
Refinancing the project on a long-term basis
Deciding which units to sell and which to retain
Structuring the ownership of the freehold and leasehold interests
Ensuring lenders were comfortable with the structure
On top of that, the market had started shifting.
Rising interest rates meant the original strategy of keeping the entire development was no longer the most sensible option.
Instead, the owners decided to sell four units and retain seventeen as long-term rental investments.
That decision introduced another layer of complexity.
The structural review
When P10’s advisory team reviewed the accounts and development position, another issue emerged.
The underlying assets had been undervalued in the existing accounts, which meant the true financial position of the project wasn’t being properly reflected.
Once the development was properly assessed and the structure reconsidered, a significant planning opportunity became clear.
By implementing a group restructure and correctly positioning the assets within that structure, we were able to create a framework that supported the refinancing and the revised strategy - without triggering unnecessary tax charges.
Creating a structure that worked for everyone
The solution involved creating two additional companies within a group structure.
This allowed the development to be separated into clearly defined components:
A company to hold the freehold of the block
A company to hold the leasehold units being retained as rental investments
The existing development entity to complete the development and manage disposals
This separation created a much cleaner structure from several perspectives.
For the client, it allowed the retained properties to sit within a dedicated investment vehicle designed to generate long-term rental income.
For lenders, it created a clearer security position, allowing the retained units to be refinanced under a single commercial loan at a more competitive rate.
And for tax purposes, it allowed the assets to move between companies within the group without triggering corporation tax or stamp duty land tax.
Unlocking £1m tax-free
Perhaps the most significant outcome came from reassessing the true value of the assets and implementing the new group structure.
The restructure enabled the owners to extract £1 million from the business tax-free - something they had previously assumed would create a substantial tax charge.
This was achieved through careful planning around the group structure and the movement of assets between companies, ensuring the transactions qualified under the tax rules governing intra-group transfers.
Managing a moving strategy
Importantly, the structure also allowed the client to adapt as their strategy changed.
Originally the plan had been to retain the entire development.
As interest rates rose, that approach no longer made sense.
The final outcome saw four units sold and seventeen retained, creating a balance between immediate capital return and long-term rental income.
Because the structure separated the ownership of the freehold, sale units and retained properties, those changes could be implemented without needing to redesign the structure each time the strategy evolved. This also allowed the refinance to take place a lot earlier than if the asset sat within one single entity. This saved the clients considerable sums in interest as they were able to refinance £5,200,000 of debt from a rate of 10% per annum, to a rate of 5.3% per annum. This alone saved our client £20k a month in interest whilst they waited for the four remaining units to sell.
Future-proofing the development
The structure also introduced a number of long-term advantages.
A dedicated freehold company was created with 21 shares - one for each unit in the building.
This might sound like a small detail, but it gives the owners significant flexibility should long-leaseholders ever exercise statutory enfranchisement rights in the future.
Instead of forcing a complex restructuring at that point, the ownership of the freehold can be managed through simple share transfers in the freehold company.
In other words, the structure anticipates future legal realities rather than reacting to them.
The real impact
The immediate outcomes were significant:
£1 million extracted from the business tax free
A refinance structure lenders were comfortable with
Over £20k a month saved due to the structure allowing the clients to refinance early before the sales completed on the remaining units
The ability to sell some units while retaining others
No stamp duty or corporation tax triggered on internal transfers
But just as importantly, the business now has a clean, scalable structure for the long-term ownership of the development.
For property developers and investors, this kind of work often sits behind the scenes.
Yet it can dramatically change the financial outcome of a project.
Because when the structure is right, developers can adapt their strategy, secure better finance and extract value from their projects - without tax or structural complexity getting in the way.
