Holding properties in offshore entities has come under the scrutiny of legislators keen to be seen as cutting down tax avoidance. From April 2013 the tax regime relating to UK property whose title is held by offshore non-natural persons will undergo a change, with the result that new taxes and charges will be levied.
Currently non-natural persons ("NNP") pay a higher rate of stamp duty when it acquires a UK residential property of 15%, instead of the lower 7% that natural persons pay on an acquisition. This is not affected by the new legislation.
Annual Residential Property Tax
The new legislation provides that in respect of NNP-owned properties valued in excess of £2m, a new annual charge - the Annual Residential Property Tax – will be implemented. In respect of properties valued between £2m and £5m the yearly tax will be £15,000. For properties valued between £5m and £20m it will be £35,000 yearly, and finally for properties valued in excess of £20m, £140,000.
Capital Gains Tax
The legislation will also alter Capital Gains Tax ("CGT") on residential properties held by non-UK resident sellers, including foreign NNPs. Currently foreign NNPs do not pay CGT. Under the new regime, foreign NNPs will be required to pay 28% CGT upon sale.
One silver lining is that under the new regime it will be possible to rebase the property value as of April 2013.
Exemptions for Corporate Trustees
Corporate trustees are not subject to the new taxes, which may be of use to some NNPs. In a hypothetical example, property held by an NNP, which is itself held by a corporate trust, could be transferred to the trust without stamp duty or CGT applying to the transfer. Additionally, should a trustee hold UK property, the trustee may take Principal Private Residence Relief and avoid CGT on further sales. An exemption also applies for property exclusively used for rental.
The corporate trustee exemption, does come with its own risks however. Ownership by a trustee would be subject to a charge after 10 years, which may be up to 6% of the value of the equity in the property (being the difference between the property's value and loans against the property).
A further risk exists in relation to the exemption in respect of properties that are rented exclusively and entirely to a third party. The risk with this exemption being that a single day of occupation by anyone connected with the NNP that owns the property would cause the exemption to cease to apply. In this respect care may need to be taken with properties being rented amongst corporate groups.
If you hold property in an offshore vehicle or would like to know how these changes might affect you contact email@example.com or firstname.lastname@example.org or by telephone on 0207 583 3434 for more information.
In most cases, we can arrange a free initial consultation.