How to Restructure Your Property Company for Inheritance Tax

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If you own a property company, you've probably heard the word "restructuring" thrown around. Maybe your accountant mentioned it. Maybe you read something online. Maybe someone at a property networking event told you it's the secret to avoiding inheritance tax.

But what does it actually mean? What's involved? And is it really worth doing?

This is the guide we wish existed when we started working with property company owners. It walks through the entire restructuring process, step by step, in plain English. We'll explain the principles, show you how the numbers work with real examples (all fictitious, of course), and help you understand whether it might be right for your situation.

One thing to be clear about upfront: every family's circumstances are different, and the right structure depends on your specific situation. This guide explains the concepts. It doesn't replace proper, tailored advice.

With that said, let's get into it.

What does "restructuring" actually mean?

When people hear "restructuring a property company," they often imagine something dramatic. Selling properties. Setting up offshore companies. Moving things around in complicated ways that might get them in trouble with HMRC.

The reality is much simpler than that.

Restructuring means changing who owns the shares in your company. That's it. The company itself doesn't change. The properties don't move. The tenants don't notice. Your letting agent carries on as before. Your accountant still files the same returns.

All that changes is the ownership structure — who holds shares, what type of shares they hold, and what rights those shares carry.

Think of it like rearranging the furniture in a house. The house is still the same house. But the layout works much better for how you actually live.

Why restructuring works

To understand why restructuring is so effective, you need to understand the problem it solves.

If you're reading this, the chances are you own 100% of a property company. Maybe you and your spouse own it jointly. Either way, those shares — all of them — sit in your estate. When you die, HMRC values those shares and charges inheritance tax at 40% on everything above your nil rate bands.

And because property investment companies don't qualify for Business Property Relief, the full value of those shares is exposed. There's no exemption. No reduction. Just 40% of the lot.

Restructuring tackles this problem from two directions at once.

Direction one: moving shares out of your estate

If you give shares to your adult children (or to trusts for younger children), those shares are no longer in your estate. Provided you survive for seven years after the gift, they're completely outside the IHT net.

So if you owned 100% of a company worth £2 million, and you gift 80% of the shares to your children, your estate now holds just 20% — not £2 million, but a fraction of it.

Direction two: the minority discount

Here's where it gets really interesting. That remaining 20% you hold isn't valued at £400,000 (20% of £2m). Because you now hold a minority stake in a private company, HMRC accepts that it's worth less than its proportional share.

Why? Because a minority shareholder can't force the company to sell its properties, can't force dividend payments, and can't control the company's direction. A minority holding in a private company is illiquid and carries restrictions. So HMRC applies a discount — typically between 20% and 50%, depending on the specific restrictions in the company's articles.

The result? Your estate might hold shares valued at £260,000 to £320,000, rather than £2 million.

This isn't a loophole. It's a well-established principle of UK tax law. HMRC has its own detailed guidance on valuing minority shareholdings in private companies. The discount exists because a minority stake genuinely is worth less than its proportional share.

Step 1: Creating new share classes

Most property companies start life with one type of share — ordinary shares. Everyone who holds them has the same rights: one vote per share, equal dividends, equal share of the capital if the company is wound up.

That simplicity is fine when there's only one or two shareholders. But for a restructuring to work properly, you need different classes of shares with different rights attached to each.

These are sometimes called alphabet shares — A shares, B shares, C shares, and so on. Each class can carry its own combination of rights:

• Voting rights — who gets a say in how the company is run
• Dividend rights — who can receive dividends, and how much
• Capital rights — who gets what if the company is wound up or sold

For example, you might create A shares that carry enhanced voting rights but limited capital value. Or B shares that carry full capital rights but no voting rights. The exact combination depends on what you're trying to achieve.

The key document here is the company's articles of association. These are the company's rulebook — they define what each class of share can and can't do. Amending the articles to create new share classes is a legal process that needs to be done properly by a solicitor.

How the conversion works

Typically, your existing ordinary shares are converted into a new class (say, A shares) with specific rights. Then new classes (B, C, etc.) are created and either issued to new shareholders or transferred to them.

This conversion doesn't trigger a tax charge in most cases. No capital gains tax. No stamp duty. The company's value doesn't change — it's just held through a more sophisticated share structure.

But the detail matters enormously. Get the share classes wrong, and the minority discount may not apply as expected. Get them right, and the structure does exactly what it's designed to do.

Step 2: Bringing in new shareholders

Creating different share classes is only useful if you then bring in other shareholders. The whole point is to dilute your holding from a controlling majority to a minority.

There are typically three groups of people who become shareholders:

Adult children

This is the most common route. Your adult children (18 or over) can hold shares directly in their own name. They become shareholders in their own right, with whatever rights are attached to their share class.

This is straightforward from a legal perspective. The shares are either issued to them (new shares) or transferred to them (existing shares that you give away).

Minor children and trusts

If your children are under 18, they can't hold shares directly. Instead, shares can be held in trust for their benefit. A trust is simply a legal arrangement where someone (the trustee) holds assets for someone else's benefit (the beneficiary).

Trusts sound complicated, but they're used every day in the UK. The trust deed sets out the rules — who benefits, when, and how. It's a well-trodden path, and any solicitor who works in this area will be very familiar with the process.

There are different types of trust, and the right one depends on your circumstances. We won't go into the detail here — that's a conversation for your adviser — but the important thing to know is that trusts are a perfectly normal and legitimate way to hold shares for younger family members.

Your spouse

Your spouse may already hold shares, or they may become a shareholder as part of the restructuring. Transfers between spouses are exempt from both capital gains tax and inheritance tax, which gives you more flexibility in how you structure things.

For couples planning together, the restructuring is often designed to work across both estates, making sure both spouses end up with minority holdings after the shares have been distributed to children.

Step 3: The minority discount

We've touched on this already, but it's worth spending a moment on it because this is where much of the IHT saving comes from.

Once you hold a minority stake in a private company, HMRC values that stake at less than its proportional share of the company's net assets. This is known as a minority shareholding discount.

The discount reflects a simple reality: a minority shareholder in a private company has limited power. They can't force the company to pay dividends. They can't force a sale of the properties. They can't outvote the majority on key decisions. And there's no stock market where they can easily sell their shares.

All of these restrictions make the shares less attractive to a hypothetical buyer — and therefore less valuable.

How big is the discount?

This depends on the specific restrictions attached to the shares and the size of the holding. As a general guide:

• A holding of 25-49% might attract a discount of 15-30%
• A holding of 10-24% might attract a discount of 25-40%
• A holding below 10% might attract a discount of 35-50% or more

These are indicative ranges. The actual discount in your case will depend on the specific rights (or lack of rights) attached to your shares, the company's articles of association, and how the structure has been set up.

This is one of the reasons why the restructuring needs to be done properly. A well-drafted set of articles, with carefully defined share classes and restrictions, supports a higher minority discount. A poorly drafted structure might leave money on the table.

Step 4: Transferring shares — the seven-year rule

When you give shares to your children (or to trusts), those gifts are classified as potentially exempt transfers (PETs) for IHT purposes. That means they're potentially exempt from inheritance tax — but only if you survive for seven years after making the gift.

If you survive the full seven years, the gift drops out of your estate entirely. No IHT at all.

If you die within the seven years, the gift is brought back into your estate for IHT purposes — but with taper relief reducing the tax from year three onwards:

• 0-3 years: 40% (full rate)
• 3-4 years: 32%
• 4-5 years: 24%
• 5-6 years: 16%
• 6-7 years: 8%
• 7+ years: 0%

This is why timing matters. The sooner you restructure, the sooner the clock starts ticking. Every year you delay is a year less of protection for your family.

What about insurance?

Many families take out life insurance written in trust to cover the potential IHT bill during the seven-year period. If the worst happens and you die within those seven years, the insurance pays out enough to cover the tax — and because the policy is in trust, the payout itself isn't part of your estate.

This is a sensible precaution, not a sign that the planning is risky. It's simply bridging the gap until the seven years have passed.

What about control?

This is the question everyone asks — and rightly so. "If I give away 80% of my company, don't I lose control?"

The short answer is: no, you don't have to.

This is one of the most important aspects of the restructuring, and it's often the part that puts people's minds at ease.

Remember those different share classes we talked about? This is where they really earn their keep. Your shares (the A shares, typically) can be designed with enhanced voting rights. Even though you might hold 15% of the total shares, your A shares could carry, say, 10 votes per share while the B and C shares carry one vote each.

The result? You remain the majority voter despite being a minority shareholder. You still control the company. You still make all the decisions. You're still the director. You still manage the properties, deal with the letting agent, approve expenditure, and run things exactly as you do now.

Your children hold shares — and they benefit from the capital value and potentially from dividends — but they don't get to override your decisions about how the company is run.

The articles of association can also include other protective provisions:

• Pre-emption rights — if any shareholder wants to sell, the other shareholders get first refusal
• Transfer restrictions — shares can't be transferred without director approval
• Dividend waivers — flexibility over who receives dividends and when
• Director appointment rights — you retain the right to appoint and remove directors

In practice, most clients tell us they don't notice any difference in how the company operates day to day. The restructuring happens in the background. The control stays exactly where it was.

The legal work involved

Let's be upfront: this is proper legal work. It's not a DIY job, and it's not something your accountant should be doing on the side. You need a solicitor who specialises in corporate restructuring and understands the IHT implications.

Here's what's typically involved:

Amending the articles of association

The company's articles need to be rewritten to create the new share classes and define the rights attached to each. This requires a special resolution passed by the shareholders (which is straightforward when you currently own 100%).

Share conversion and issuance

Your existing ordinary shares are converted to the new A class. New share classes (B, C, etc.) are created and either issued or prepared for transfer. Stock transfer forms are completed. New share certificates are issued.

Trust deeds (if needed)

If any shares are going into trust — typically for minor children — the trust deeds need to be drafted. These set out the terms of the trust: who the trustees are, who the beneficiaries are, and what powers the trustees have.

Companies House filings

Various forms need to be filed with Companies House to reflect the new share structure. This includes updated articles, confirmation of new share classes, and details of new shareholders.

Documentation pack

At the end of the process, you should receive a complete documentation pack including: amended articles, board and shareholder minutes, share certificates, stock transfer forms, trust deeds (if applicable), and a summary letter explaining the structure.

What doesn't change

One of the biggest misconceptions about restructuring is that it's disruptive. People worry that it'll cause problems with tenants, mortgage lenders, or HMRC.

In practice, here's what stays exactly the same:

• The company — same company number, same name, same bank accounts
• The properties — still owned by the company, no change in title
• The tenants — they won't know anything has changed
• Your letting agent — no change to management arrangements
• Your mortgage lender — the borrower (the company) hasn't changed
• Your accountant — same company, same accounts, same tax returns
• Day-to-day management — you're still the director, still in charge
• Bank accounts — same company, same accounts
• Insurance policies — same company, same insured properties

The restructuring is entirely an ownership-level change. It's invisible to anyone who interacts with the company operationally.

That said, it's good practice to inform your mortgage lender about significant changes to shareholding. Most lenders are comfortable with family restructurings, but it's better to notify them proactively than to have them discover it later.

Costs and timelines

People naturally want to know two things: how much does it cost, and how long does it take?

Timeline

A typical restructuring takes 6 to 8 weeks from start to finish. The process usually follows this pattern:

1. Week 1-2: Initial consultation, review of company structure, planning the new share classes and ownership split
2. Week 2-4: Solicitor drafts amended articles, trust deeds (if needed), and supporting documentation
3. Week 4-6: Review and finalise documents, sign everything, issue new share certificates
4. Week 6-8: Companies House filings, completion of documentation pack, handover

More complex structures — those involving multiple trusts, larger numbers of shareholders, or unusual company structures — may take longer. But for a straightforward family restructuring, 6-8 weeks is realistic.

Cost

The fee is typically a single fixed amount covering the advisory work, legal drafting, and Companies House filings. We don't quote specific numbers here because the fee depends on the complexity of the structure.

But here's the way to think about it: the fee typically represents a small percentage of the total IHT saving. When the saving runs into hundreds of thousands of pounds, the restructuring fee is a sound investment by any measure.

Is it worth it?

Let's put some numbers on this. Remember, these are fictitious examples for illustration — your own figures will be different.

The maths almost always works strongly in favour of restructuring. The only question is whether your specific circumstances allow for it — which is why that initial conversation matters.

Common concerns addressed

We hear the same questions time and again. Let's address them honestly.

"Is this a loophole?"

No. Restructuring uses well-established principles of UK company law and tax law. Creating different share classes is a standard corporate procedure. Making gifts that become exempt after seven years is a principle that's been in the tax code for decades. Minority discounts are recognised and applied by HMRC themselves.

This isn't aggressive tax avoidance. It's sensible family planning — the same kind of planning that thousands of families across the UK carry out every year.

"Will my accountant approve?"

Almost certainly, yes. Most accountants are well aware of these structures and will be supportive. In fact, many of our clients come to us on their accountant's recommendation.

Your accountant may want to review the proposed structure to make sure it doesn't create any unintended tax consequences (for example, around dividend planning or capital gains). That's perfectly reasonable and we always welcome it. Good planning involves all your advisers working together.

"What if HMRC challenges it?"

HMRC can and does review estates that have been restructured. But if the restructuring has been done properly — with genuinely different share classes, real restrictions on minority holdings, and a clear commercial rationale — there's no basis for a challenge.

The key is documentation. The articles of association need to be robust. The share classes need to have genuinely different rights. The structure needs to reflect economic reality, not just paper arrangements. When it's done properly, it stands up to scrutiny.

"Am I too old for this?"

The seven-year rule means that the earlier you restructure, the more effective it is. But even if you're in your 70s or 80s, restructuring can still make sense. The minority discount applies immediately — you don't have to wait seven years for that. And taper relief starts reducing any IHT on gifted shares from year three.

Plus, life insurance can bridge the gap during the seven-year period. The premiums will be higher at older ages, but the potential saving still far outweighs the cost in most cases.

"Am I too young?"

If you own a property company, it's never too early to start thinking about this. In fact, restructuring in your 40s or 50s gives you the best chance of surviving the seven-year period comfortably, and it means your children benefit from the structure for decades.

There's a common misconception that IHT planning is something you do in retirement. The reality is that the sooner you act, the more options you have and the more effective the planning becomes.

"What if my children are irresponsible with money?"

This is a valid concern, and it's one reason why the share classes are designed the way they are. Your children may hold shares, but those shares can be structured so that dividends are at the director's discretion (yours), shares can't be transferred without approval, and voting control remains with you.

If your children are very young, shares held in trust add another layer of protection — the trustees control the shares until the children reach a specified age.

The structure can be tailored to your comfort level. You don't have to hand over the keys to the kingdom.

What happens after the restructuring?

Once the restructuring is complete, life goes on pretty much as before. You continue to manage the company, collect the rent, deal with maintenance, and make all the same decisions you always have.

There are just a few things to be aware of:

• Annual accounts — your accountant will need to reflect the new share structure in the company's annual accounts. This is routine.
• Dividend planning — with different share classes, you have more flexibility around dividends. Your accountant can advise on the most tax-efficient approach.
• Confirmation statement — Companies House will need updated details in the next annual confirmation statement.
• Record keeping — keep the full documentation pack safe. Your executors will need it one day.

The real benefit becomes apparent when the time comes. Instead of your family facing a six-figure IHT bill and scrambling to find the funds, the restructured estate passes far more efficiently. Less tax, less stress, more of what you've built going to the people you built it for.

What to do next

If you've read this far, you're clearly serious about protecting your family's wealth. That's a good instinct.

The next step is a conversation. Not a sales pitch — just an honest look at your specific situation. Every family is different. The size of your company, the number and ages of your children, your health, your other assets, your mortgage arrangements — all of these affect what the right structure looks like.

Some families find that a straightforward share restructuring is all they need. Others benefit from combining it with trusts, insurance, or other elements. A few discover that restructuring isn't the right approach for them at all, and that's fine too — at least they know.

The one thing that never makes sense is doing nothing. Because doing nothing means accepting a 40% tax charge on everything you've worked to build. And for most property company owners, that's a bill that runs into hundreds of thousands of pounds.

You've spent years building your property portfolio. It makes sense to spend a few weeks making sure your family actually gets to keep it.