Examining corporate structuring and financing approaches that enhance efficiency, resilience, and long-term value creation.
In the UK development landscape, structuring finance effectively is critical to project success. From traditional self-financing models to joint ventures, developers must consider timing, tax, and risk management at every stage.
Supply chain themes
Financing strategy and timing
Tax considerations and reliefs
Structuring for risk and flexibility
Top Tips for structuring
1. Financing strategy and timing
Developers typically inject equity early in the build phase, but clarity on the cost of debt and funding strategy is essential. Negotiations should factor in potential “make-whole” clauses and cost overruns - understanding when these are crystallised helps delay bank draw downs and preserve cost savings. With interest rates remaining high, hedging strategies have regained popularity, and banks are increasingly focused on leverage during refinancing in a tighter debt market.
2. Tax considerations and reliefs
In a high interest environment, ensuring that your funding structure maximises the deductions available for corporate interest can be a valuable strategy. The restrictions on corporate interest deductibility have increased in recent years and this in an area where HMRC are currently very active. It is vital when planning funding to ensure that all arrangements are commercial and that modelling is carried out in the early stages, to ensure that interest deductions are not being unduly restricted.
Structuring efficiently can also bring positive benefits in terms of capital allowances, particularly for developers. One lesser known but extremely valuable example is Land Remediation Relief (LRL) , which if available can e generate significant tax credits. In recent years we have seen examples of clients utilising these credits to fund subsequent projects, which has been a particularly efficient and cheap form of financing. The availability of LRL will depend on how a contract is structured so care must be taken in the first instance to assess the the potential availability and quantum of the relief.
3. Structuring for risk and flexibility
Joint ventures (JVs) and partnerships offer risk-sharing opportunities but require robust communication and clear terms. Key considerations include:
Who contributes capital and when?
How are cost overruns funded?
What is the exit strategy?
Banks scrutinise control structures and are wary of wholly unincorporated JVs, often demanding detailed constitutional documents and contingency planning. SPVs (Special Purpose Vehicles) are common but can heighten sensitivity to overruns, prompting banks to require guarantees and larger contingencies.
4. Top Tips for structuring
- Plan for the exit Tax mitigation is most effective when aligned with the end goal.
- Modelling The complexities inherent in achieving a commercially and tax efficient structure require detailed modelling at the outset
- Choose corporate structures where possible Reliefs tend to favour limited companies over LLPs.
- Avoid mid-project changes These are costly and difficult to renegotiate with lenders.
Ultimately, while the perfect structure may not exist, thoughtful planning and clear communication can help developers navigate the financial and tax landscape with confidence.
