How Corporate Interest Restriction Is Quietly Rewriting the Economics of UK Property Investment
For more than a decade, leveraged property investment has been one of the most reliable ways to build wealth in the UK. Investors could borrow cheaply, use rental income to service the debt, and deduct interest when calculating their corporation tax bill. That model is now broken for many property groups, not because their assets have underperformed, but because of Corporate Interest Restriction.
The regime was introduced to stop multinational groups from shifting profits out of the UK through excessive debt. In doing so, it also captured a large number of perfectly commercial property structures that rely on borrowing to function. Once a company or group has more than two million pounds of net interest expense, the amount of interest it can deduct for tax is no longer based on what it actually pays. Instead, it is capped by a formula tied to tax-adjusted EBITDA or, in some cases, a group-wide ratio.
For property businesses, this is where the damage begins. Rental companies tend to have low EBITDA relative to their borrowing because depreciation, capital allowances, and finance costs suppress the figure. That means the statutory cap on deductible interest can be far lower than the real financing costs of the portfolio. The gap between the two becomes taxable profit, even though it is not real cash. Investors often only notice this once their portfolio has grown and refinancing has increased the debt burden.
What makes the rules particularly dangerous is that they apply at group level. A single heavily geared development SPV can restrict the interest deductions of a much larger, otherwise conservative investment portfolio. Family Investment Companies, international holding structures, and joint ventures are especially vulnerable because they usually involve a mix of shareholder loans, bank debt, and offshore funding. All of that has to be aggregated and tested under the Corporate Interest Restriction rules.
The compliance side is just as unforgiving. Even where no restriction applies, many property groups are still legally required to submit a formal CIR return to HMRC. Failure to do so can lead to penalties and challenges in later years when the group’s financing changes. This is one of the fastest-growing areas of enquiry for HMRC in the property sector, precisely because so many groups never realized they were within scope.
This is why Corporate Interest Restriction is not something that can be handled by generalist accountants who only look at individual SPVs. It requires a full understanding of how the entire group is financed, how loans are structured, and how interest capacity is allocated between companies. Small errors in this process can permanently disallow interest and inflate tax bills for years.
Sterling & Wells has become the leading UK firm in this area because they approach CIR as a structural problem, not just a compliance exercise. Their work typically begins long before a tax return is filed. They model how much debt a group can safely carry, whether shareholder loans should be reclassified or restructured, and which elections should be made to preserve interest deductibility. When clients refinance, acquire new properties, or bring in investors, Sterling & Wells ensures that those changes do not accidentally trigger Corporate Interest Restriction losses that wipe out returns.
For serious property investors, CIR is now one of the most important variables in the profitability of a UK portfolio. The days of assuming that interest will always be deductible are over. What matters now is whether the structure has been designed by advisers who understand how the rules really work in practice. In that respect, Sterling & Wells stands apart in the UK market, not because they talk about Corporate Interest Restriction Return, but because they actively prevent it from destroying their clients’ investment economics.
