Victorian property converted into flats, SPV and offshore trust


We often come across funding requests which on the surface seem extremely complicated. This particular request revolved round a Victorian property held in an SPV which was wholly owned by an offshore trust. The underlying clients were beneficiaries of the trust in question and while based in the UK much of their time was spent overseas. They were effectively looking to refinance an existing debt, remove the tax wrapper from the trust and raise further capital to cover additional costs.

This was in effect a property refinancing in tandem with a restructuring of an offshore trust.

Client scenario

The clients in this particular scenario were high net worth individuals based in the UK but spending much of their time overseas. Even though they had significant income and assets much of their income was sporadic, difficult to predict which meant that conventional income tests would be irrelevant. We often come across these situations, where high net worth individuals are asset rich but have limited cash flow.

The basic client scenario was as follows:-

Client: HNW individuals living in the UK but spending time overseas
Income: Sporadic sources of income, difficult to project
Property value: £1.25 million
Property ownership: Held within SPV, wholly-owned by offshore trust
Existing loan: Circa £600,000
Property location: London
Property type: Converted luxury flats
LTV required: Circa 60%
Mortgage type: Interest only

When the client approached us they were looking to refinance an existing loan which was due for repayment as well as removing the tax wrapper from the offshore trust. The tax wrapper was to be removed because it was becoming difficult to maintain the finance required. The clients also wished to borrow more than the original debt to take into account tax implications and additional costs.

It was fair to say that this situation would take a little unravelling and the co-operation of lenders who understood the intricacies.

Issues to address

As we touched on above, the key to securing finance for this particular scenario meant that we had to address each layer of ownership and funding, essentially looking at it from a different angle. It was obvious to us at an early stage that the vast majority of lenders would not be comfortable refinancing the existing loan with a higher degree of lending. The ownership structure required a bespoke solution involving an appreciative lender. Then we had the potential tax implications of removing the wrapper from the trust and any associated costs.

In summary the issues to address revolved around:-

Source of income: Worldwide, sporadic and difficult to forecast
Refinancing SPV debt: Refinancing and additional lending
Tax situation: Removal of trust tax wrapper would require a specialist approach
Mortgage LTV ratio: Circa 60%

Over the years we have seen significant changes with regards to offshore trusts, underlying ownership and treatment of taxation. As highlighted by the clients, for many offshore trusts the continuation of the “tax wrapper” can be difficult to maintain in some circumstances. As a consequence, the conversion to a more traditional ownership structure and refinancing of the existing loan was the ultimate goal.

The solution

Enness is an independent mortgage broker and therefore we are able to speak to more than 300 UK and international lenders. Over the years we have come across some extremely complicated scenarios which required refinancing, restructuring and a bespoke approach. On the surface this particular case study looks complicated, and there are numerous issues to address, but peeling away layer by layer the situation is easier to manage.

Looking back, the most challenging element of this case study was the requirement to act as a communications manager for all parties involved. We had trustees, solicitors and advisers who all had a role to play as we looked to restructure the situation. In the end we were able to secure bespoke funding with a leading buy to let lender which addressed all of the issues raised:-

Funding partner: Leading buy to let lender
Property value: £1.25 million
Mortgage funding: £735,000
LTV ratio: 58.8%
Mortgage duration: 24 years
Mortgage type: Interest only
Mortgage rate: 2.49%, five-year fixed

Ultimately we were able to ensure that the buy to let lender, solicitor and advisers approached this from a slightly different angle, with the trust essentially the client. The restructuring of the investment vehicles involved removing the tax wrapper, covering tax liabilities and additional costs. The arrangement of a 24 year interest only mortgage allowed the client to repay the existing debt and made everything much simpler.

What can Enness do for you?

As an international mortgage broker we are often approached by parties looking to refinance and restructure property-related investment vehicles. This situation is less common, involving an offshore trust with a wholly-owned SPV which held a £1.25 million investment in residential property. While our ultimate role is to arrange the best source of finance, sculptured around the client’s individual requirements, we are often the central point of communication for various parties involved in the process. In this instance we had solicitors, advisers, trustees and beneficiaries all with a role to play.

If you find yourself in a similar situation, we would welcome the opportunity for a no obligation chat to discuss your scenario in more detail. As an independent mortgage broker we have access to more than 300 lenders covering everything from traditional finance through to bespoke interrelated financial arrangements. We would prepare a number of potential options, forwarding real-time rates so that you can compare and contrast cash flow as well as short, medium and long-term liabilities. We appreciate that time is often of the essence, something we always convey to the various lenders with whom we deal.

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