Beneficial Interest Company Trust FAQ

Suppose you are considering incorporating to minimise tax on rental profits as mortgage interest relief is phased out. In that case, you need to know about beneficial interest company trusts and how they work.

Lawyers and accountants are arguing over the effectiveness of the trust touted as the solution to landlord tax problems triggered by the new rules.

To help, here are some answers to the most frequently asked questions about beneficial interest company trusts:

What does a beneficial interest company trust do?

The scheme claims to let borrowers shift their buy to properties into a company while keeping ownership and the mortgages in their names.

Once in the trust, the rents and expenses are dealt with under corporation tax rules rather than as the landlord's income tax.

What about capital gains tax on the property transfer?

The landlord retains ownership, so no capital gains tax is triggered.

What do mortgage lenders say about this?

The Council of Mortgage Lenders (CML) says banks and building societies are investigating how the arrangement might impact the terms of buy-to-let loans.

What is the tax man saying about the trusts?

HM Revenue and Customs (HMRC) is saying nothing other than a tax scheme that looks too good to be true generally is.

No action is forthcoming because HMRC will deal with the trust issue after the first  tax filings that include transfers under beneficial interest company trusts.

How do landlords know the trusts work?

They don't know. They will only find out if HMRC takes action against the trust arrangement, and by that time, the transfer is complete, and any fees due are paid.

Balancing any tax savings against costs

Professional costs of setting up a beneficial interest company trust will vary according to personal circumstances, such as the number of properties owned and the number of owners.

Expect to pay between £5,000 and £20,000 plus VAT to set up the trust, which means the scheme could take years to pay off against the amount of tax paid without any certainty the government will not change the rules or HMRC will make a challenge in court.

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Tax is an aspect of residential property investment which is often overlooked. There are many twists and turns to consider at all levels, whether for income tax, capital gains tax or inheritance tax. It is vital to get the ownership structure right and ensure that all tax relief, allowances, and claims are made.