London property prices have sky rocketed over the past few years due to various reasons. Yes, domestically we are not building enough houses in the city, but for high-value residential homes, the main demand has come from the influx of foreign capital seeking a safe haven against the vagaries of today’s recessionary climate, concerns over the Euro, and even perhaps the realisation that London is not a bad city in which to live, or simply visit occasionally based in one’s own home. And now the UK Exchequer is going to cash in on this ‘property windfall’.
We already know that the corporate acquisition of homes whose value exceeds £2mn will attract a 15% stamp duty land tax as opposed to the previous 5% before the 2012 budget. Next week, on 11th December, we will know whether the so-called ‘mansion tax’ is going to be introduced as an annual charge for UK residential property over £2mn held by ‘non-natural persons’ at a cost of between £15,000 and £140,000 per annum. We will also be informed that there will be an extension of the capital gains tax regime to disposals of UK residential properties, as well as shares in offshore companies owning UK residential property. We don’t yet know whether there be a re-basing of value so that the massive increases in values to date are exempt from the new CGT regime; if this is not included in the legislation it will amount to retrospective taxation so that immediate restructuring would be essential.
What is clear is that current ownership structures must be reviewed once the new provisions are announced. Although the ideas for restructuring may be fairly quickly prepared, implementing the changes can take a considerable amount of time, particularly where assignments from one entity to another need the consent of other parties (for example, leasehold apartments requiring landlords’ consent to assign).
And there won’t be a one-size fits all answer to problems created under the new legislation. We have considered many possibilities, including transferring properties into personal ownership but with the consequent inheritance tax exposure; creating nominee arrangements which would need to be disclosed and would not preserve confidentiality of ownership; creating an offshore limited partnership which is inherently transparent and may not achieve the tax benefits desired; creating a double trust structure which is more complex but may meet the objectives of avoiding inheritance tax and the mansion tax; or simply maintaining the current corporate structure if the intention is to dispose of the property in the relatively short term (subject to the government introducing a re-basing provision next week). There may be other issues that one needs to consider when examining a current structure, such as whether the ownership of UK property creates any potential UK tax residence issues, or even UK domicile issues.
With the Christmas period following next week’s revelation, it may be useful for Clients and their professional advisors to start the examination of current structures as soon as possible in order to complete restructuring prior to 5th April 2013. IFS has put together a team of professionals who include: property lawyers to effect necessary property assignments; bankers to lend relevant finance to mitigate potential inheritance tax liabilities; commercial lawyers to effect the trust and loan documentation if required; valuation experts to provide relevant valuations of properties and corporate liquidators to oversee the liquidation of relevant companies, the distribution of assets to its shareholders and liaising with the UK tax authorities HMRC. There are therefore several hoops to jump through before 5 April 2013!
Regular readers will know of my interest in advising on real estate worldwide ever since my book ‘Structuring International Real Estate Transactions’ was published by Sweet & Maxwell in 1991. This title was in fact used for the third ITSAPT annual conference which I presented at the Landmark London hotel on 8th November. As with the two previous conferences, I am glad to report that the conference was very successful and we had over 20 tax professionals from around the world (United States, Hong Kong, Singapore, India, Brazil and many European countries) to discuss issues on investments in real estate in their respective countries. We were honoured to have Kevin Gardiner of Barclays, our ITSAPT sponsor, to talk about the investment climate generally and specifically investments in real estate both in the UK and in Asian countries. And the role play that we arranged as a consultation with Tax Counsel Philip Baker QC on the issues relating to a property development in Mayfair was very revealing as well as entertaining. My thanks to all those who participated.
We are planning four more ITSAPT conferences next year, one being again in London as our flagship conference, with others covering the regions of North America, Asia and Africa. And after four months of intensive work I am delighted to announce that ITSAPT is now open to receive members: http://itsapt.com/account/register/.
In addition to becoming part of a growing international multi-discipline advisory community, by joining ITSAPT members will be able to access a growing body of articles and other resources on cross-border tax, legal and commercial issues. As this body of knowledge grows we will also be able to match the content against specifically expressed preferences.
Members will also be able to seek other specialist advisors who work in defined jurisdictions and practice areas in order to help them amplify their existing professional networks. Over time, ITSAPT will provide a diverse set of online resources, including blogs, news, webinars and discussion groups – and will also introduce features to make key elements of the knowledge base available in a form accessible to the client community of entrepreneurs, CFOs, CEOs and high net worth individuals.
Because we recognise that the value of the services available will scale through time, we are providing members who join before 31 December 2012 with 18 months’ full access.
I hope this is interesting to you and I look forward to welcoming you to our ITSAPT community. Please don’t hesitate to contact me (click here) if you have any questions or comments.
With my best regards
Roy Saunders