A Global Eye Opener

Tim Searle, CEO of Globaleye discusses changes in UK property tax that will affect foreign investors

Property in the United Kingdom has been popular with investors from all over the world for years and continues to do so. London in particular has remained a safe haven and an attractive destination for investors, perhaps more than any other major city in the world. With its solid track record, clear legal title, and of course plenty to do, it remains a favourite for the rich and famous alike.

When buying in the UK, depending on the level of investment, well advised foreign investors would use structures to reduce their exposure to taxes. Typically, investments would be purchased using various structures such as Trusts, Special Purpose Vehicles,Private Investment Companies, or similar offshore corporate structures, and for many years, this was the standard method to buy UK property. This alleviated exposure to capital gain and inheritance taxes, with lawyers predominately using the BVI to facilitate the structure.

“With the following tax changes, this is no longer the case” shared Tim Searle.

As of April 6th, 2017, changes to tax rules meant that non-domiciles and non-residents owning UK property indirectly through corporate structures, purchased either before or after this date, would be liable for UK Death Tax at 40%. This fee is based on the value at the time of death and must be paid before the asset can be passed on to their family or estate.

Following the global financial crisis, and some would say the advent of Brexit, the UK government sought to increase the taxes on UK property held through structures by introducing a raft of anti-avoidance measures aimed at UK property that is held indirectly. By consequence, all recent structures typically used by foreign investors are now no longer suitable in a move to level the playing field for investors in the UK.

This legislation has been on the cards for some time and experts say it was merely a matter of time before it was enforced. Perhaps the exit negotiations with the EU triggered Prime Minister, Theresa May, to enforce this regulation since she needs to raise an estimated £50 billion. To avoid tarnishing her already fragile position with UK voters, she looked to other areas, non-voters for example, in order to raise the funds needed.

Evidently, these new anti-avoidance rules have severely limited tax planning options for non-domiciled and non-residents in respect of UK residential property. Property investors need to be aware of this new legislation and the impact on their residential property portfolio. Whether the property has a mortgage or you intend to gift the property to other members of your family, there remains a hefty 40% bill without some serious planning. Even if you sell all your residential assets today, there can still be a liability for up to 2 years, which is why seeking advice right away is imperative.

Globaleye works collectively with lawyers, family offices, fiduciary agents and/or financial advisers, to create a solution whereby the property has a vehicle that creates money to meet the death tax liability when triggered. This ensures the property asset(s) are passed swiftly to the family/estate and has not encumbered the estate for 40% of the value. This solution is relatively straight forward, low cost and more than mitigates the potential cost of the death tax bill.

UK property, in particular London, will continue to be an attractive destination for investors. Recent statistics show there is £35 billion worth of London property held through BVI structures alone. Tax bills can always be mitigated but it does mean that planning beforehand with your professional partners is essential.