BLP PRIVATE WEALTH SERIES

Transcription

1 BLP PRIVATE WEALTH SERIES Engaging communication Holding UK residential property Edition 3

2 Contents Introduction...01 Background...02 Annual Tax on Enveloped Dwellings...04 Inheritance Tax...04 Capital Gains Tax charge...05 Core issues for consideration...06 Ownership structures...08 Personal ownership...11 Corporate ownership...17 Trust ownership...27 Trust and corporate ownership New purchases...42

3 Berwin Leighton Paisner LLP Introduction The 2012 UK Budget introduced new provisions affecting UK residential property holding structures. Some provisions had immediate effect, and others applied from April A challenge, an opportunity, but not a problem. Damian Bloom We want to assist you to apply these new provisions to the property holding structures that you operate. The starting point is this guide, which addresses the most popular holding structures on a case by case basis, to: identify those structures which are most affected; find solutions for the simple scenarios; and explain the options, and questions, for the complex ones. The guide is not intended to be read from cover to cover, but to enable you to find, and address, particular structures quickly. We hope it is helpful, and look forward to working with you in the near future. Legal Business Awards 2012 Private Client Team of the Year Damian Bloom Partner, Tax damian.bloom@blplaw.com WINNER Private Client Team of the Year The Lawyer Awards 2012 Private Client Team of the Year This guide is not a substitute for specific legal advice. April 2013 Holding UK residential property /01

4 Background Background New tax measures announced in the 2012 UK Budget impacted on the way in which UK residential property is structured, and owned. After heavy lobbying, the Finance Bill 2013 partially restricted the scope of these provisions, introducing reliefs for properties acquired or held purely for trading, development or letting. It also provides that the capital gains tax ( CGT ) provisions allow effective rebasing up to 5 April Trustees are also excluded. The key provisions affecting 2m+ residential property are: 7% stamp duty land tax ( SDLT ) on acquisition (effective from 22 March 2012); 15% SDLT on acquisition by companies, partnerships (with a corporate member) or collective investment schemes (effective from 21 March 2012); 28% CGT on gains accruing post 5 April 2013 on disposals by companies, partnerships (with a corporate member) or collective investment schemes; and a new Annual Tax on Enveloped Dwellings ( ATED ) charged on holdings by companies, partnerships (with a corporate member) or collective investment schemes (effective from 1 April 2013) at the rates set out below: Property value Proposed annual charge 2m - 5m 15,000 5m - 10m 35,000 10m - 20m 70,000 20m+ 140,000 The new reliefs mean that planning to prevent the new CGT or ATED in advance of 1 April 2013 was in most cases straight forward. Even post 6 April, there is no cliff-edge CGT, although careful thought is still required around confidentiality, debt, and inheritance tax planning. For those structures with UK residents in occupation of the property, planning needs to achieve a delicate balance between existing anti-avoidance rules and the new provisions. 02/ Holding UK residential property

5 It is absolutely brilliant and the best information and presentation I have ever seen on the subject. Feedback on first edition Senior Wealth Planner

6 Annual Tax on Enveloped Dwellings (ATED) Annual Tax on Enveloped Dwellings (ATED) The ATED is payable annually from 1 April It is self assessed and will be based on the market value of the property on 1 April 2012 (and then on every 5 year anniversary of 1 April 2012). The ATED (and the new CGT charge) will not apply where a property is: held for the purpose of: -- letting to third parties on a commercial basis; -- a property development business; or -- a property trading business provided the property is not occupied by a person connected to the owner (e.g. the sole shareholder of the company or, in the case of a company held by a trust, the settlor or a beneficiary of the trust). open to the public for at least 28 days a year on a commercial basis - for example, as a venue - to provide accommodation or other services. If relief from the ATED is claimed for part of the chargeable period (1 April to the next 31 March), the ATED payable is calculated on a daily basis. Inheritance Tax (IHT) Budget 2013 introduced new restrictions on the set-off of debts if the borrowed money is: taken offshore by a non-uk domiciled individual (or the trustees of an excluded property settlement); or used to buy assets which qualify for IHT relief. Those who de-envelope to avoid the ATED and new CGT charge will be exposed to an IHT charge. To mitigate this, there were many arrangements involving borrowing, whether from a trust or a bank, secured on the property to reduce its value for IHT. These new proposals will disallow such borrowings, so subjecting the owners to a charge to IHT on the full value of the property. Retaining property within a corporate vehicle may now be a more attractive option where mitigating IHT through insurance is not possible. In addition, the impact of the new General Anti-Avoidance Rule ( GAAR ) will need to be considered. 04/ Holding UK residential property

7 Capital Gains Tax charge (CGT) Capital Gains Tax charge (CGT) The new CGT charge does not apply if the property is exempt from the ATED. It will only apply if: the ATED was payable on the property for any day while it was owned; and the property is sold for more than 2m (or its market value is more than 2m where it is disposed of to a connected person). As the new CGT charge only applies if the ATED was payable on at least one day during the period of ownership, in most cases, no CGT charge will arise on the sale of a property interest for more than 2m between now and 31 March 2017, if the property interest was worth less than 2m on 1 April The CGT charge will only apply to gains accruing on properties on or after 6 April This means that properties are effectively rebased to their 5 April 2013 market value. An election can be made not to apply this rebasing (e.g. where there is a loss). Where a property is not subject to the ATED for part of the time it is owned, only part of the post 5 April 2013 gain will be subject to tax. The part of the gain subject to tax is calculated by reference to the number of days on which the ATED was payable. If the property is owned by a non-uk resident company, any gain subject to the new CGT charge will not be attributed up to the shareholders of the company under section 13 Taxation of Chargeable Gains Act 1992 ( TCGA ). Part of the gains on a disposal may not be subject to the new CGT charge (for example, where the property was not subject to the ATED for part of the period of ownership). Those gains will still be attributed up to the shareholders of the company under section 13 TCGA. In some circumstances relief against this charge may be available. Disposals of property held directly by non-uk resident trustees, non UK resident individuals, or UK resident individuals in occupation of the property as their main residence (and so benefitting from Principal Private Residence relief ( PPR relief )) should still not be subject to CGT. Many high value UK residential properties are held via non UK companies, which are themselves held via non UK trusts. Many of these structures will be affected by these new provisions, and therefore will need to be considered and potentially restructured. However, considerable care will need to be taken to ensure that any restructuring does not of itself cause tax charges. Holding UK residential property /05

8 Core issues for consideration Core issues for consideration In order to focus efforts on those structures which are most affected, we have categorised structures from least affected to most affected, on the opposite page. Whilst in some cases solutions will be clear, as you move down the table to the most affected structures, a range of issues and options will need to be considered, before a solution can be determined. We have set out below some of the issues, which may be useful to raise with clients: current and future domicile and residence of the settlor and beneficiaries; benefits received, or likely, in the future (including property occupation); property value, and latent gains; property title, loan and charge documentation; availability of PPR relief to reduce CGT (not available if the property is owned by a corporate); existing income and gains within the structure; availability of the IHT spouse exemption - noting that it is limited to 325,000 (increased from 55,000 with effect from 6 April 2013) on gifts from a UK domiciled spouse to a non-uk domiciled (and not deemed domiciled) spouse. From 6 April 2013 it is now possible for a non-uk domiciled spouse to make an election so full spouse exemption is available; trustee and corporate debt or loans; management and control of corporate entities, and shadow directorship risks; dependent agent and permanent establishment issues affecting trustees; relief from SDLT on liquidation; long term intentions for the trust and property; local tax, legal and compliance issues. Icon key This stamp signifies that the law remains unchanged post Budget March This stamp signifies that changes have been made to the law post Budget March / Holding UK residential property

9 Core issues for consideration The good, the bad and the ugly Personal ownership (no impact) Direct trust ownership: PPR available (no impact) Direct non-uk trust ownership: no PPR (no impact) Least affected Non-UK corporate ownership: NR/ND shareholder Non-UK corporate ownership: NR/UKD shareholder Non-UK corporate ownership: UKR/ND shareholder Trust and corporate ownership: NR/ND or dead settlor; NR/ND beneficiaries Non-UK corporate ownership: UKR/UKD shareholder Trust and corporate ownership: NR/ND or dead settlor; UKR beneficiary - some NR beneficiaries Trust and corporate ownership: NR/ND or dead settlor; UKR beneficiary - no NR beneficiaries Most affected NR = Non-resident ND = Non-domiciled UKR = UK resident UKD = UK domiciled Holding UK residential property /07

10 Ownership structures Property owned by: Individual Company UK resident UK domiciled individual see page 12 UK resident UK domiciled shareholder see page 18 UK resident non-uk domiciled individual see page 13 UK resident non-uk domiciled shareholder see page 20 Non-UK resident UK domiciled individual see page 14 Non-UK resident UK domiciled shareholder see page 22 Non-UK resident non-uk domiciled individual see page 15 Non-UK resident non-uk domiciled shareholder see page 24 08/ Holding UK residential property

11 Ownership structures Trust Trust and company Non-UK resident trustees (PPR relief available) see page 28 Non-UK resident trust and non-uk resident company see page 34 Non-UK resident trustees (PPR relief not available) see page 30 All beneficiaries non-uk resident see page 35 UK resident and non-uk resident beneficiaries Note In the tables: bold = Budget 2012 provision Relief is available from the 15% SDLT, ATED and CGT, where the property is acquired or held for a letting (to a third party), development or trading business. The tables that follow are relevant where no such relief applies. see page 36 Only UK resident beneficiaries see page 38 Holding UK residential property /09

12 The Government is determined to take action against those who attempt to avoid paying their fair share of tax on residential property. David Gauke, Exchequer Secretary to the Treasury 12/ BLP guide to training courses

13 INSERT TAB 1 PERSONAL OWNERSHIP

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15 PERSONAL OWNERSHIP

16 Personal ownership UK resident UK domiciled individual Tax position Tax Issue UKRUKD INDIVIDUAL Capital gains tax 28% Inheritance tax 40% on death Income tax 45% if let (50% before 6 April 2013) PROPERTY Corporation tax ATED N/A N/A Tax planning options Capital gains tax no CGT if property is main residence due to PPR relief Inheritance tax insurance to pay IHT spouse exemption Income tax borrow and set interest off against taxable rental income 12/ Holding UK residential property

17 Personal ownership UK resident non-uk domiciled individual Tax position Tax Issue UKRND INDIVIDUAL Capital gains tax 28% Inheritance tax 40% on death Income tax 45% if let (50% before 6 April 2013) PROPERTY Corporation tax ATED N/A N/A Tax planning options Capital gains tax no CGT if property is main residence due to PPR relief Inheritance tax insurance to pay IHT spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /13

18 Personal ownership Non-UK resident UK domiciled individual Tax position Tax Issue NRUKD INDIVIDUAL Capital gains tax Inheritance tax Nil 40% on death Income tax 45% if let (50% before 6 April 2013) PROPERTY Corporation tax ATED N/A N/A Tax planning options Capital gains tax non-resident individuals not subject to UK CGT even on UK assets Inheritance tax insurance to pay IHT spouse exemption Income tax borrow and set interest off against taxable rental income 14/ Holding UK residential property

19 Personal ownership Non-UK resident non-uk domiciled individual Tax position Tax Issue NRND INDIVIDUAL Capital gains tax Inheritance tax Nil 40% on death Income tax 45% if let (50% before 6 April 2013) PROPERTY Corporation tax ATED N/A N/A Tax planning options Capital gains tax non-resident individuals not subject to UK CGT even on UK assets Inheritance tax insurance to pay IHT spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /15

20 This complex set of provisions appears to be aimed at a handful of central London transactions, but will have far broader unintended consequences. Damian Bloom BLP

21 INSERT TAB 2 CORPORATE OWNERSHIP

22 BACK OF TAB 2 DO NOT PRINT

23 CORPORATE OWNERSHIP

24 Corporate ownership UK resident UK domiciled shareholder Tax position Tax Issue UKRUKD INDIVIDUAL Capital gains tax CGT at 28% on gains accruing post 5 April 2013 on disposal of property (> 2m) by company Corporate gain accruing pre-6 April 2013 attributed to shareholder (28% CGT) 28% on disposal of shares by shareholder Inheritance tax 40% on death (value of shares) NON-RES COMPANY Income tax If let: 20% on company; and income tax on shareholder either through anti-avoidance, or dividend, with credit for tax paid by company Corporation tax N/A (see 20% income tax charge above if let) ATED 15, ,000 if property value > 2m PROPERTY 18/ Holding UK residential property

25 Corporate ownership Tax planning options Capital gains tax If only a small gain on property: possibly liquidate company prior to April 2013 to avoid new CGT charge and the ATED liquidation will result in (potential double) CGT charge on shareholder If a large gain on property: hold and sell in the future (paying the ATED, and CGT on post 5 April 2013 gains); pre-6 April 2013 gains will be taxed on shareholder unless non-resident at time of sale liquidate and pay tax now Inheritance tax insurance to pay IHT spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /19

26 Corporate ownership UK resident non-uk domiciled shareholder Tax position Tax Issue UKRND INDIVIDUAL Capital gains tax CGT at 28% on gains accruing post 5 April 2013 on disposal of property (> 2m) by company Corporate gain accruing pre-6 April 2013 attributed to shareholder (28% CGT) 28% on disposal of shares by shareholder (subject to remittance basis) NON-RES COMPANY Inheritance tax Income tax Nil If let: 20% on company; and income tax on shareholder either through anti-avoidance, or dividend, with credit for tax paid by company Corporation tax N/A (see 20% income tax charge above if let) PROPERTY ATED 15, ,000 if property value > 2m 20/ Holding UK residential property

27 Corporate ownership Tax planning options Capital gains tax If only a small gain on property: possibly liquidate company prior to April 2013 to avoid new CGT charge and the ATED liquidation will result in (potential double) CGT charge on shareholder and a new exposure to IHT If a large gain on property/older client: hold and sell in the future (paying the ATED, and CGT on post 5 April 2013 gains); pre-6 April 2013 gains will be taxed on shareholder unless non-resident by time of sale liquidate and pay tax now Inheritance tax No IHT exposure if company retained, but CGT and ATED If company liquidated and property held directly: insurance to pay IHT spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /21

28 Corporate ownership Non-UK resident UK domiciled shareholder Tax position Tax Issue NRUKD INDIVIDUAL Capital gains tax CGT at 28% on gains accruing post 5 April 2013 on disposal of property (> 2m) by company Inheritance tax 40% on death (value of shares) Income tax If let 20% on company NON-RES COMPANY Corporation tax ATED N/A (see 20% income tax charge above if let) 15, ,000 if property value > 2m PROPERTY 22/ Holding UK residential property

29 Corporate ownership Tax planning options Capital gains tax possibly liquidate company prior to April 2013 to avoid new CGT charge and the ATED no rebasing planning required as new CGT charge only applies to gains accruing post 5 April 2013 Inheritance tax No IHT exposure if company retained, but CGT and ATED If company liquidated and property held directly: insurance to cover IHT spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /23

30 Corporate ownership Non-UK resident non-uk domiciled shareholder Tax position Tax Issue NRND INDIVIDUAL Capital gains tax CGT at 28% on gains accruing post 5 April 2013 on disposal of property (> 2m) by company Inheritance tax Nil Income tax If let 20% on company NON-RES COMPANY Corporation tax ATED N/A (see 20% income tax charge above if let) 15, ,000 if property value > 2m PROPERTY 24/ Holding UK residential property

31 Corporate ownership Tax planning options Capital gains tax possibly liquidate company prior to April 2013 to avoid new CGT charge and the ATED no rebasing planning required as new CGT charge only applies to gains accruing post 5 April 2013 liquidation will result in a new exposure to IHT so if older client (particularly if low latent gain): -- transfer to younger generation -- accept the ATED and new CGT charge on future gains Inheritance tax No IHT exposure if company retained, but CGT and ATED If company liquidated and property held directly: insurance to pay IHT spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /25

32 I have never seen such a user friendly document from a law firm: it is absolutely exceptional. Global Head of Fiduciary

33 INSERT TAB 3 TRUST OWNERSHIP

34 BACK OF TAB 3 DO NOT PRINT

35 TRUST OWNERSHIP

36 Trust ownership Non-UK resident trustees (individual or corporate) PPR relief available Tax position Tax Issue NON-RES TRUST Capital gains tax No CGT on disposal of property by trustees Settlor or beneficiaries potentially chargeable to tax on trust gains, but should be set off by PPR relief PROPERTY Inheritance tax Discretionary trust: 10 yearly charge on value of trust assets and charge on distribution Qualifying interest in possession: charge on death of life tenant Trust property in estate of settlor if settlor/spouse can benefit Income tax 45% if let (50% before 6 April 2013) Corporation tax ATED N/A N/A 28/ Holding UK residential property

37 Trust ownership Tax planning options Capital gains tax Note: PPR relief could be restricted in future Inheritance tax insurance to pay IHT if pre-march 2006 life interest (or other qualifying interest in possession) - spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /29

38 Trust ownership Non-UK resident trustees (individual or corporate) PPR relief not available Tax position Tax Issue NON-RES TRUST Capital gains tax No CGT on disposal of property by trustees Settlor or beneficiaries potentially chargeable to tax on trust gains PROPERTY Inheritance tax Discretionary trust: 10 yearly charge on value of trust assets and charge on distribution Qualifying interest in possession: charge on death of life tenant Trust property in estate of settlor if settlor/spouse can benefit Income tax 45% if let (50% before 6 April 2013) Corporation tax ATED N/A N/A 30/ Holding UK residential property

39 Trust ownership Tax planning options Capital gains tax Budget 2012 should have no significant adverse impact on structure Consider core issues with client: if all beneficiaries non-uk resident, settlor non-uk resident (or dead), or no benefits taken by UK resident beneficiaries -- consider transferring property out of trust to avoid risk of future charge on UK resident beneficiaries if UK resident beneficiaries have received (or will receive) benefits (e.g. free use of the property) or settlor is UK resident -- settlor or beneficiaries may be chargeable to tax on trust gains realised on future sale of property (pre 5 April 2013 & post 6 April 2013 gains) Inheritance tax insurance to pay IHT if pre-march 2006 life interest (or other qualifying interest in possession) - spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /31

40 A guide like that would be great. No other lawyers are considering this from the perspective of my business. CEO, Channel Islands trust company

41 INSERT TAB 4 TRUST AND CORPORATE OWNERSHIP

42 BACK OF TAB 4 DO NOT PRINT

43 TRUST AND CORPORATE OWNERSHIP

44 Trust and corporate ownership Trust and corporate ownership Note This structure is common, but complex. Detailed advice will usually be needed. In the following cases we have assumed a non-uk domiciled and non-uk resident, or dead settlor. Tax position Tax Issue NON-RES TRUST Capital gains tax CGT at 28% on gains accruing post 5 April 2013 on disposal of property (> 2m) by company Corporate gain accruing pre-6 April 2013 attributed to trust and potentially chargeable on beneficiaries/settlor NON-RES COMPANY Inheritance tax Income tax Non-domiciled settlor: nil UK domiciled settlor: depends on trust terms If let: 20% on company; and 45% (50% before 6 April 2013) potentially on settlor or beneficiaries (anti-avoidance) but credit for tax paid by company Corporation tax N/A (see 20% income tax charge above if let) PROPERTY ATED 15, ,000 if property value > 2m 34/ Holding UK residential property

45 Trust and corporate ownership All beneficiaries non-uk resident Tax planning options Capital gains tax Remove property from structure: appoint shares to non UK resident beneficiary (then liquidate company) prior to April 2013 to avoid new CGT charge and the ATED. Gains should be washed from trust sell company or property pre-april Gains may be chargeable on future UK resident beneficiaries Liquidate company but retain property in trust (more attractive, if PPR relief will be available in future): trust gains on liquidation, and underlying property disposal by company, may become chargeable on future UK resident beneficiaries trust gains on future sale of property by trustees may become chargeable on future UK resident beneficiaries, subject to availability of PPR relief Retain trust and corporate structure (additional tax risk/cost): CGT on sale of property by company post 5 April 2013 no rebasing planning required prior to April 2013 as new CGT charge only applies to gains accruing post 5 April 2013 defers CGT, but need to pay the ATED; retain inheritance tax protection need to balance taxes potential charge on future UK resident beneficiaries who receive benefits (but double charge set-off) Inheritance tax (if any) insurance/spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /35

46 Trust and corporate ownership Mix of UK resident and non-uk resident beneficiaries Tax planning options Capital gains tax Remove property from structure: appoint shares in company to non UK resident beneficiary (then liquidate company) prior to April 2013 to avoid new CGT charge and the ATED. Gains should be mostly washed from trust, but a proportion of gains chargeable on UK resident beneficiaries, potentially limited to current tax year benefits sell company or property pre-april Gains may be chargeable on UK resident beneficiaries who benefit Liquidate company but retain property in trust (more attractive, if PPR relief will be available in future): trust gains on liquidation, and underlying property disposal by company, may become chargeable on UK resident beneficiaries trust gains on future sale of property by trustees may become chargeable on UK resident beneficiaries, subject to availability of PPR relief 36/ Holding UK residential property

47 Trust and corporate ownership Retain trust and corporate structure (additional tax risk/cost): CGT on sale of property by company post 5 April 2013 no rebasing planning required prior to April 2013 as new CGT charge only applies to gains accruing post 5 April 2013 defers CGT, but need to pay the ATED; retain inheritance tax protection need to balance taxes potential charge on UK resident beneficiaries who have received/receive benefits (but double charge set-off) Inheritance tax (if any) insurance to pay IHT if pre-march 2006 life interest (or other qualifying in possession) - spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /37

48 Trust and corporate ownership UK resident beneficiaries, no non-uk resident beneficiaries Tax planning options Capital gains tax Remove property from structure: trust gains on appointment or sale of shares or property may become chargeable on UK resident beneficiaries (potential double charge) Liquidate company but retain property in trust (more likely, if PPR relief will be available in future): trust gains on liquidation, and underlying property disposal by company, may become chargeable on UK resident beneficiaries who have received/receive benefits trust gains on future sale of property by trustees potentially chargeable on UK resident beneficiaries who have received/ receive benefits, subject to availability of PPR relief 38/ Holding UK residential property

49 Trust and corporate ownership Retain trust and corporate structure (additional tax risk/cost): CGT on sale of property by company post 5 April 2013 defers CGT, but need to pay the ATED; retain inheritance tax protection need to balance taxes potential charge on UK resident beneficiaries who have received/receive benefits so long term tax position may not be significantly worse possible mitigation if beneficiaries become non-uk resident in future Inheritance tax (if any) insurance to pay IHT if pre-march 2006 life interest (or other qualifying interest in possession) - spouse exemption Income tax borrow and set interest off against taxable rental income Holding UK residential property /39

50 Trust and corporate ownership Trust > Company > Property: Relevant factors Trustees should consider Appointing shares to beneficiary to liquidate company if: Liquidating company and holding property if: Retaining company and property post April 2013 if: Capital gains tax all non-res beneficiaries, or no past benefits to UK resident beneficiaries NB - realised latent gains should be washed out on appointment limited current or future benefits to UK resident beneficiaries NB - realised latent gains could be matched to benefits to UK resident beneficiaries (up to 44.8% for future benefits) PPR relief available post liquidation UK-resident beneficiaries received substantial benefits (e.g. occupation) NB - realised latent gains could be matched to benefits to UK resident beneficiaries. Hence, more likely where low latent gains/ property not likely to increase significantly Inheritance tax younger beneficiaries spouse exemption available (once held directly) settlor exposed to IHT younger beneficiaries spouse exemption available (once held directly) settlor exposed to IHT ageing beneficiary in occupation, and IHT exposure mitigated by structure (so IHT protection is valuable) spouse exemption not available even if restructured Income tax property not let property not let property let commercially and no UK resident settlor or beneficiaries 40/ Holding UK residential property

51 Trust and corporate ownership Appointing shares to beneficiary to liquidate company if: Liquidating company and holding property if: Retaining company and property post April 2013 if: ATED limited cash liquidity (difficulty funding ATED) limited cash liquidity (difficulty funding ATED) cash available for ATED Other factors responsible recipient beneficiary third party sale planned in near future management and control concerns desire to simplify property to be held long term management and control concerns (simplify for future) property is/will remain under 2m family governance more important than tax concerns debt structure difficult to unwind local taxes on winding up/local property ownership issues property to be held long term management and control concerns (time to address them) Also consider on an open market sale, gains may accrue in trust to be matched to benefits to UK resident beneficiaries (with supplemental charge - up to 44.8%), but on an appointment out, gains may be washed out spouse exemption is limited to 55,000 on transfers from UK domiciled spouse to non-uk domiciled (and not deemed domiciled) spouse. This limit is increasing to 325,000 for gifts made on or after 6 April 2013 and it will be possible for a non-uk domiciled spouse to make an election so full spouse exemption is available risk of future changes to UK CGT rules (including PPR) affecting non-uk resident trustees and/or non-uk residents holding property directly Holding UK residential property /41

52 New purchases New purchases Specialist tax advice should be sought on any planned purchases of residential property in the UK, whether for investment or for personal use. (Please note that this guide is aimed at existing structures, rather than new purchases.) The new punitive 15% rate of SDLT only applies to new acquisitions of residential property worth more than 2m by companies, partnerships (with a corporate member) or collective investment schemes. The rate is intended to deter people from buying UK residential property through companies (UK or non UK). Corporate (and individual) trustees are exempt from the 15% SDLT rate in most cases and so, like individual purchasers, will pay SDLT at the 7% rate. Given the new 15% SDLT rate, the ATED and the CGT exposure, corporate acquisitions will now be far less attractive. These new provisions (as intended by the proposals) can be avoided by purchasing in personal names. However, there are disadvantages: where the property is rented out, income tax is payable at a maximum rate of 45% (50% before 6 April 2013) on the net rental income; this can be reduced by interest paid on third party finance taken out to acquire the UK property; UK property held directly will be subject to UK inheritance tax on death. This exposure can be mitigated by insurance. Following the restrictions on the set-off of debts announced at Budget 2013, effectively only borrowing taken out to acquire the property will reduce its value for IHT. confidentiality would be lost, however it could be protected by purchasing the property through a nominee. Other options for a new purchase include: a non UK resident trust, which should not be subject to the 15% SDLT charge, the ATED or the new CGT charge; a partnership structure, subject to certain conditions, the SDLT, CGT and ATED should not apply, and IHT protection may be available. Note that these new provisions do not apply where the property is acquired purely for a trading, development or lettings business. However, relief from the 15% SDLT rate will not be available until the Finance Bill receives Royal Assent (anticipated in late July). 42/ Holding UK residential property

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54 Getting in touch When you need a practical legal solution for your next business opportunity or challenge, please get in touch. London Adelaide House, London Bridge, London EC4R 9HA England Damian Bloom Tel: +44 (0) damian.bloom@blplaw.com Clients and work in 130 countries, delivered via offices in: Abu Dhabi, Beijing, Berlin, Brussels, Dubai, Frankfurt, Hong Kong, London, Moscow, Paris and Singapore