A £4m property portfolio incorporated, then built into a blended family investment company

The client

A married couple who run a full-time property business, alongside a small separate business. Their portfolio of 18 properties was worth about £4m and carried no debt. It was a mix of single lets, houses in multiple occupation (HMOs) and holiday lets, producing roughly £140,000 of rent a year, split equally between them. The work was carried out in 2024.

The challenge

Three worries sat side by side.

• Inheritance tax. A £4m portfolio held in their own names would, on the rules at the time, form a large part of their taxable estates. Every pound of future growth would be added to that.
• Income tax. They paid higher-rate tax on their rent. They also planned to borrow to buy more, and personal borrowing would have run into the restriction on mortgage interest relief for individual landlords.
• Growth. They did not want a structure that only protected what they had. They wanted to keep investing, and to do it in a way that suited their children.

A family investment company could not be built until the portfolio sat inside a company. Moving property into a company can trigger capital gains tax and stamp duty land tax at market value, so the first question was how to get there without those charges.

What we did

Step one: a partnership, then incorporation. The couple ran the property business as a partnership from 2022 and incorporated it in 2024. Incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992 deferred the capital gains tax on the transfer, and partnership relief meant no stamp duty land tax was payable on it. We cover that part of the work in detail on our sister firm, Property Tax Advisory (opens in a new tab).

Step two: a blank piece of paper. With the portfolio inside a company, we designed the family structure from scratch around what the couple wanted: to stay in control, to let the next generation share the growth, and to keep flexibility for future generations. That led to a blended family investment company.

• Freezer shares for the couple. Their capital entitlement was fixed at the company's value when the shares were issued. They keep the votes, so they stay in control of the company and its investment decisions. See freezer and growth shares.
• Growth shares for the children and a discretionary trust. These were newly issued to them, not converted from existing shares, so no deemed disposition arose on a conversion. They share in the increase in value above the starting point. Because their starting value was low, little value left the couple's estates when they were issued. See a trust as a shareholder.
• Separate share classes. Alphabet shares let dividends be directed to different shareholders without relying on dividend waivers, which HMRC can challenge.
• A valuation prepared in-house. Our team valued the freezer and growth classes when they were created.
• Non-statutory clearance from HMRC. We applied for it before the couple committed to the structure.

The whole project took under two months. The legal documents were prepared alongside the tax work.

Diagram: fic-blended

Why the inheritance tax logic works

The structure is built around where the future growth lands.

• Growth builds outside the couple's estates. The company's increase in value above today's figure belongs to the growth shares, held by the children and the trust. It does not add to the value of the couple's own shares.
• The frozen value stays in. The couple's freezer shares keep their fixed value, and that value remains part of their estates. The structure does not take today's wealth out of the inheritance tax net. It limits how much more is added.
• The children's shares are gifts, with a seven-year clock. A gift of shares to an adult child is a potentially exempt transfer, free of inheritance tax if the donor lives for 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. Shares held by a discretionary trust can be directed to whoever needs them, including future generations, and the trustees' control can help protect them 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.
• A trust has its own inheritance tax regime. Settling shares on a discretionary trust is a chargeable transfer at the time, and the trust then falls under the relevant property regime. Because the growth shares were worth little at settlement, the entry charge and the exit charges in the early years are expected to be low. The trade-off is that the trust is charged on its value at each ten-year anniversary, at up to 6%, so as the shares grow, those charges will grow with them.

The outcome

• Stamp duty land tax of about £300,000 avoided on moving the portfolio into the company.
• Capital gains tax of about £600,000 deferred under incorporation relief. It is deferred rather than removed, because the gain is carried into the base cost of the new shares.
• Income tax saved by more than £25,000 a year, an actual saving seen since 2024, compared with the couple staying personal. The company can also borrow to grow without the restriction on personal interest relief.
• A share structure designed to help protect the family's wealth for future generations. The couple keep control through their freezer shares, while future growth builds in the hands of the children and the trust.
• Completed in under two months.

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