As an immediate effect of the newly arrived Finance Bill 2017, in this article we analyze the effect of the rules concerning taxation matters for UK residential or non-residential properties to help investors and tax planners dealing with their client real-estate portfolios to get a head start and take immediate steps for optimizing tax-wise via corporate restructuring;
As of 06/04/2017, an offshore trust/ company holding UK residential property will be subject to:
- 10 year anniversary charges will apply;
- Exit charges, for example if shares appointed out to a beneficiary, or the UK property itself is appointed out;
- If the trust is settlor-interested, GROB (“gifts with reservation of benefit”) rules apply – value of the shares attributable to the UK property will fall into that individual’s estate on death;
Key actions to consider for offshore companies holding UK residential property are:
- Leaving shares to spouse in Will – covered by the spouse exemption so no IHT due on first death;
- If UK property is let, settling shares in to trust so the property is held in a trust/ company structure – no lifetime IHT charge;
- Splitting share ownership between different family members to make use of each individual’s nil rate band – different share classes could be used to give different rights to different shareholders;
- In-specie dividend of property to shareholder; shareholder then taking out life insurance to cover IHT exposure;
- Transferring shares into an offshore UK-equivalent qualifying pension fund;
Key actions to consider for offshore trust holding UK residential property are:
- Excluding the settlor from any benefit from the trust (spouse and minor children would also have to be unable to benefit); settlor then pays a market value rent when using the property;
- Life Insurance to cover settlor’s IHT exposure;
- Gifting shares in the company to other family members to make use of their nil rate bands;
- Selling property and reinvesting the proceeds in offshore assets or UK non-residential property – there is an IHT “tail” for two years after the UK residential property sale but, after that, the trust will have converted its assets back to “excluded property”;
- In specie-dividend of property up to the trust – removes ATED issue where property is not let out;
Regarding tax planning for your UK property via an offshore trust / company set up, we strongly recommend utilizing a Cyprus International Trust (CIT) or a Cyprus Company. PAHALAW in collaboration with its entrusted UK partners specializes in accommodating customized estate-planning restructuring services. For more information please contact Mr. Paris Hadjipanayis at [email protected].
