Tax & Deal Structuring.

Two buyers can agree the same headline price for the same building and end up with materially different net positions. The difference sits in structure: whether the property or the company is acquired, how VAT is treated, how debt is secured, and how the eventual exit is expected to work.

Structure should be settled at heads of terms, not at exchange. Once a transaction has momentum, changing the structure usually means repricing, and repricing late is where deals lose credibility with the other side.

The choice between buying the property and buying the company that owns it is the first structural decision on most transactions of scale. Each route carries a different tax profile, a different diligence burden, and a different allocation of historic risk.

A corporate acquisition can reduce transaction tax, but it transfers the company's history to the buyer. That history must be diligenced and protected against, and the cost of doing so properly offsets part of the saving. On smaller lot sizes the saving rarely justifies the complexity.

VAT is the area where avoidable errors are most common, because the default position on land is exemption and the consequences of an option to tax run for a long period. It affects the price a buyer will pay, the recoverability of development costs, and the rent a tenant is charged.

Principles worth confirming early

• Land and buildings are exempt from VAT by default, with an option to tax available in many cases
• Opting to tax allows recovery of VAT on costs but adds VAT to rents and to a subsequent sale
• The construction of qualifying new homes, and the first grant of a major interest in them, is generally zero rated
• Conversions and qualifying work to long term empty property can attract reduced rates where the statutory conditions are met
• The VAT position of a target must be established before exchange, since it affects both price and cash flow

Where a property is let and sold as a going concern, the transfer may fall outside the scope of VAT provided the conditions are met. Those conditions are specific and should be confirmed by a specialist adviser on each transaction rather than assumed from a previous deal.

Structure and financing are decided together. A lender's requirements on security, guarantees and reporting will shape the vehicle, and a structure chosen purely for tax efficiency can prove difficult or expensive to fund.

Points to test with a funder before committing

• Whether the proposed vehicle can grant the security package the lender requires
• How intra group loans and shareholder debt are treated within covenants
• Whether an existing facility can be assumed or must be repaid, and the cost of breaking it
• Reporting obligations attaching to the borrower and who will discharge them
• How the structure behaves on a partial disposal or a refinancing part way through the hold

Aligning the structure with the funding at the outset avoids the common outcome where a vehicle is set up, terms are agreed, and the structure then has to be unwound to satisfy a credit committee.

Overseas investors face additional layers, including reporting obligations, registration of overseas entities holding UK property, and rules covering gains on disposal of UK land by non residents. None of these prevent investment, but each adds time to a transaction and should be built into the programme.

Practical implications

• Registration and beneficial ownership requirements must be satisfied before a transaction can complete
• Withholding and reporting obligations on rental income need an administrator in place from day one
• Disposal of UK land by a non resident is within the UK tax net, so exit assumptions must reflect that
• Home jurisdiction treatment may differ from UK treatment, and both need to be modelled
• Timelines lengthen where signing authority or funds sit in another jurisdiction

The UK remains attractive to overseas capital for its transparency and legal certainty. The structuring work is procedural rather than obstructive, provided it starts early enough to run alongside commercial negotiation rather than after it.

Structural complexity is manageable when it is planned and disruptive when it is discovered. Most delays on structured transactions trace back to information that was requested late rather than issues that were genuinely unforeseeable.

Diligence workstreams to open on day one

• Title and security position, including any charges that must be released at completion
• Historic tax position of the vehicle, covering corporation tax, VAT and any land transaction liabilities
• Existing debt, break costs, and whether facilities can be assumed or must be repaid
• Employment and contract obligations that transfer with the company
• Warranty and indemnity cover, and whether insurance is available and proportionate

A short structuring discussion at the outset, involving the tax adviser, the lender and the agent together, consistently saves more time than it costs. It establishes the route, the cost, and the programme before either side becomes committed to assumptions that later have to be renegotiated.