Title splitting is a process whereby a freeholder divides their property, and changes the ownership of different portions. There are many reasons why title splitting may be required. For instance a freehold block of flats could be split into individual titles and these ‘sold off’ on long leases. Alternatively a site may be split to provide separate ownership of a portion which could then be developed. Often the land is being prepared for future sale, either to a commercial developer or when a private building is sold off to a third party. In other cases, after someone dies, estates are divided between multiple business partners, or ownership is passed to a relative for their own use.

Even if not used very often, title splitting is a useful property investment strategy to have up your sleeve when necessary. For many investors it is their primary strategy and they have carved out a niche for themselves, become experts at spotting title splitting opportunities.

Permission to split title is granted by the Land Registry on a case by case basis, so presenting your plans clearly and concisely is paramount for a smooth process. There are different considerations for private and commercial property, so you should be clear about if (and how quickly) you intend to sell the title, or whether you will keep ownership of the land, but as multiple parcels.

Mistakes during title splitting can lead to complicated and significant financial implications for land and property owners, with capital gains tax and income tax laws coming into effect. While some freeholders may be advised to treat their development plans as a business, and set themselves up as a limited company, this may not apply to all cases, and professional advice is recommended.

At the Property Lifeboat we have used title splitting effectively in the past as a way of unlocking value as the following example demonstrates.

Here is an example; We ppurchased a mixed residential/commercial property in which consisted of a one bed ground floor flat with 2/3 bed maisonette above on the front of the site with an access road to the rear with a yard and several commercial units.  The primary purpose of the acquisition was to hold the whole property for income. After consideration as to whether the rear commercial portion of the site could be further developed (either into residential units or further commercial units) we decided that the quickest and most risk-free route to unlocking value was by splitting the title and selling the commercial portion first, then renovating the residential units if/when they became vacant. The figures below deal with the title splitting part of the project which was conducted about 2mths after purchasing the site:

• Description: Mixed residential/Commercial site
• Asking Price: £175,000
• Purchase price: £154,500
• Costs: £2,000
• Day 1 Income: £9190pa (residential), £7540pa (commercial – potential maximum rent with some units vacant)
• Day 1 Yield: 10.8% (potential)

In view of the fact that some of the commercial units were vacant and it would have required some renovation works to be carried out first to secure tenants, we immediately went about a quick high level appraisal on development options. We concluded that the site would be expensive to either renovate or develop and had limited potential so we decided to split off and sell the commercial portion which we did approximately 90days later. We then had the residual value of the residential units reassessed. We have subsequently renovated both residential units which has further enhanced the value of the building and increased the income.

• Sales price achieved: £65,000
• Costs: £3,000
• Total cost of project: £159,500 (purchase plus fees)
• Residual value of residential units: £120,000
• Day 90 income: £9190pa
• Day 90 Yield: 7.65%
• Profit: £120,000 + £65000 – £159,500 = £25,500

In conclusion this was a useful strategy to apply for this site whereby we were able to quickly realise some value in the site over a 3 month period without committing to a lengthy development or renovation program with subsequent marketing before realising any profits.

As always if you any queries about this or other activities of the Property Lifeboat then please get in touch and we would be happy to answer any questions.