Title splits are a powerful tool in property investment, enabling investors to maximise value, expand portfolios, and create flexible strategies. In this blog, we’ll break down the title splitting process, explore its benefits, and discuss practical applications for success. Whether you’re a seasoned investor or new to the game, understanding title splits can open doors to untapped opportunities.
What Are Title Splits?
Breaking Down the Basics
Title splitting involves dividing a single property title into multiple legal titles. This strategy is commonly applied to properties such as:
- Multi-unit blocks (e.g., blocks of flats)
- Semi-commercial properties (e.g., shops with flats above)
- Large houses converted into separate units
The process allows each divided unit to become a standalone asset with its own title, making it possible to refinance, sell, or mortgage each unit separately. Investors often use this strategy to unlock additional value from their properties or create more flexible financing options.
The Legal Framework
Executing a title split involves creating individual leases for each unit while maintaining a freehold title for the entire property. For instance, a block of four flats might have one freehold title and four leasehold titles, each tied to a specific flat.
Why Title Split? The Key Benefits
Adding Value to Properties
One of the primary advantages of title splitting is its ability to increase a property’s value. By splitting titles, the combined value of individual units often exceeds the original value of the single property. For example:
- A block worth £200,000 as one title could be worth £300,000 when split into four flats, each valued at £75,000.
This increased value stems from the higher demand for smaller, individual units compared to a larger block.
Flexible Financing and Selling
With separate titles, investors can:
- Mortgage individual units to access equity.
- Sell off specific units to raise capital while retaining others for income.
- Diversify risk by treating each unit as an independent investment.
Enhancing Portfolio Growth
Title splits free up cash flow, making it easier to reinvest into new opportunities and expand your property portfolio. By leveraging the added value from title splits, investors can create a cyclical strategy of purchasing, splitting, refinancing, and reinvesting.
How to Execute a Title Split Successfully
Step 1: Start With Lending
Before embarking on a title split, consult a specialist mortgage advisor. Lending criteria dictate how the deal should be structured, including corporate structures and entity setups.
- Lenders often have specific requirements for title-split properties.
- Some lenders may limit the loan-to-value (LTV) ratio for multi-unit freehold blocks.
- Ensure the deal fits within the lender’s criteria to avoid unnecessary complications.
Step 2: Set Up the Right Corporate Structure
A common strategy involves using a holding company and subsidiary company model for tax efficiency and ease of lending. Here’s how it works:
- The holding company owns the freehold title.
- The subsidiary company owns the leasehold titles.
This structure avoids unnecessary stamp duty and tax charges when creating leases within the same corporate framework. Additionally, it simplifies the refinancing and selling process.
Step 3: Work With Experienced Professionals
- Solicitors: Choose solicitors who specialise in title splits and can draft leases correctly. Some solicitors may mistakenly believe title splitting is not permissible; ensure you work with those who understand the process.
- Accountants: Collaborate with accountants who can align tax strategies with lending requirements. Accountants unfamiliar with lending nuances may inadvertently complicate the deal.
- Surveyors: Accurate valuations are critical for determining the post-split value of the property.
Step 4: Timing Is Everything
Plan your title split before purchasing the property or immediately after. Delaying the process may lead to complications, such as additional stamp duty or legal costs.
Real-World Examples of Title Splits
High Street Transformation
An investor purchased a High Street block of 36 units, split each into individual titles, and added £1.8 million in value without any refurbishments. By leveraging the increased value, they accessed additional financing for new investments.
Maximising Semi-Commercial Potential
A client split a semi-commercial property into three flats upstairs and a shop downstairs. Refinancing the flats covered the entire purchase cost, leaving the shop unencumbered. This strategy allowed the client to retain the commercial unit for additional income.
Large Houses to Flats
Another investor converted a £2 million house into five flats worth £4.4 million collectively. The conversion cost was just £600,000, resulting in an impressive return. By refinancing two of the flats, they covered the conversion cost and released additional funds for further investments.
Common Mistakes to Avoid
Failing to Consult Experts
Skipping consultations with mortgage advisors or solicitors can lead to costly errors, such as:
- Incorrectly structured corporate entities.
- Unnecessary stamp duty or tax charges.
- Inability to secure financing due to mismatched lender criteria.
Misjudging Property Potential
Not every property is suitable for title splitting. Ensure the property’s location, layout, and market demand support the strategy.
Overlooking Costs
While title splits can be lucrative, they come with associated costs:
- Legal fees for creating leases.
- Surveyor fees for valuations.
- Potential refurbishment costs for converting units.
Always account for these expenses in your financial planning.
Is Title Splitting Right for You?
Title splitting is a versatile and profitable strategy for property investors. It unlocks hidden value, provides flexibility, and supports long-term portfolio growth. However, success hinges on proper planning, the right professional team, and a thorough understanding of lending and tax implications.
Whether you’re new to property investment or looking to diversify your portfolio, title splitting could be the key to achieving your financial goals. Start by consulting with experts who understand the nuances of this powerful strategy.
