Commentary - 29 June 2018

Security, succession & simplicity: Structures for international investment in UK property

For too long, the role of 'offshore' in the ownership of UK property has been associated in the minds of many, not just journalists, with tax planning and tax avoidance. Instead, it is about good management, flexibility and long-term security.

For years there have been many perfectly legitimate tax advantages in the well-organised structuring of UK property wealth overseas.

Recently, the ability to protect residential property from Inheritance Tax has been removed and there is a programme for levelling the tax playing field as far as offshore and UK companies are concerned, for both residential and commercial property.  However, some clear and again, legitimate, tax planning opportunities do remain, for example:

  • Commercial property can still be taken out of the scope of inheritance tax through being held by offshore entities;
  • Interest relief is more easily available to companies than to individuals
  • There are opportunities for mitigating both stamp duty and capital gains tax; and
  • Where transactions are within the scope of UK corporation tax, the rates of tax are benign.

But it is not all about tax.  First, surely, where does the client want to invest - geographically and in which asset classes and with what objectives?  If residential, is it for owner occupation or is it for investment or development?

If the client wishes to invest in UK property, whether commercial or residential, the appropriate structure must be designed to meet their needs.

That structure might range from the simplicity of direct personal ownership, backed-up by the use of properly drawn Wills, and possibly with life assurance as protection against inheritance tax on death whilst still in ownership – possibly with the policy itself written in trust - through to structures that are part offshore and part onshore.

Often such structures will embrace liabilities to relatively low rates of tax, as part of a simple, well-managed arrangement that gives certainty and peace of mind without any of the uncertainties and complexities of sophisticated tax planning.

In some cases, an offshore company might still be appropriate, even where there is no obvious tax advantage compared to a UK alternative.  UK tax resident but offshore companies can blend flexibility with tax certainty and might allow wealth to be moved out of the UK without triggering some form of exit charge, if ever such were introduced as part of measures to restrict the outward flow of capital. 

Other examples of flexibility would be where there are a number of Special Purpose Vehicles under a holding company, each owning an individual property, giving great flexibility for income flows and on the disposal of individual properties, either directly or through the sale of shares in its SPV – which can offer commercial and tax advantage.

Overall, the message is to preserve flexibility and to keep matters simple, allowing clients to sleep at night, whilst achieving the individual’s or the family’s overall objectives of security, succession planning and asset protection.  Energies should be applied to maximise value and security by keeping assets and their structures in impeccable order and if there is a commercial rationale it should be documented.  These factors are likely to be more important than the avoidance of tax.

In all of this there is clearly still a role for offshore generally, but for these arrangements to work at their best, a number of conditions need to come together, which Jersey is particularly well-placed to satisfy.

In these cases, the client needs a team, which then has to function properly.  The client wants a safe haven for capital and needs to be able to rely on expert and efficient management, where the manager, whether as trustee or as company director, can also act as the team’s co-ordinator, bringing in and working with appropriate experts, whether they be property agents, bankers, lawyers or accountants.

A Jersey trustee or director can do this from a jurisdiction that is stable and subject to the rule of law – one of the primary attractions of the UK as a store of international wealth.  Jersey is well-regulated and has both depth and breadth of expertise in these areas as a premier international finance centre, with a very highly respected legal system and a substantial banking and financial infrastructure, capable of providing the robust good governance, proper documentation and security that these arrangements require.


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