In general, family property investment companies are bad news. The shares do not qualify for either CGT (Capital Gains Tax) entrepreneurs’ relief or inheritance tax business property relief. Although there is an up-lift in the CGT base cost on the death of the parents, this applies only to the shares; the underlying properties retain their historic cost (or 1 April 1982 value). Furthermore, the next generation is unlikely to have inherited dad’s property expertise and even less likely to be able to agree amongst themselves what to do with the portfolio. Sadly, that can be a quick route to siblings falling out with one another. Those who are rushing to incorporate buy-to-let portfolios often seem oblivious to these problems.
But none of these problems existed in the 1950s, when many family investment companies were formed. Many such companies are now left with elderly controlling shareholders dependent on the dividends they draw from the company and often decaying portfolios in need of redeveloping or refurbishment.
What can be done? In many cases little or nothing. The parents can pass shares to their children and hope to survive for the seven year PET (potentially exempt transfer) period, but the need for income often limits the scope for doing so. So often does a reluctance to pass control to the next generation.