Offshore centres, and in particular those such as the Channel Islands which have a large number of property companies registered in the territories, are today trying to digest the changes in yesterday's UK budget, and to assess what it will mean for them. At present, the detail is still hazy and so making an informed assessment is difficult.
Up until now, overseas investors buying property in the UK could avoid paying UK stamp duty if the property was owned by an offshore company, as they would simply acquire the shares in the company, with no need to change title to the underlying property. In an effort to stop this (which had been much trailed prior to the budget), the Chancellor has introduced a new 15pc rate of stamp duty, three times the previous level, for residential properties over £2 million bought by "certain non-natural persons". So it would appear that there will be a very large tax hit on the initial transfer of a property in to corporate ownership.
Given that the standard stamp duty rate for properties over £2 million was raised to 7% in this budget, then it is not impossible to conceive that it might still be worth putting properties into offshore companies if it was expected that they were likely to change hands a number of times, as the 7% tax each time a property is sold would be exchanged for a once-only 15% tax. Even if this is not the case, it would seem on the face of it that those properties which are already in offshore company structures would almost certainly remain there. But it appears that George Osborne will also try to address these points, as he has announced a consultation on applying an annual tax on the corporate vehicles owning properties, together with capital gains tax on the sale of shares in the vehicles.
It is not at all clear how he would achieve this - it is no simple matter trying to raise taxes on non-resident companies and individuals and it can be expected that having to have some form of annual valuation mechanism would be costly and cumbersome. But whether or not he does manage to do it is of significant importance to the offshore world - if he is successful, then it is likely to lead to a loss of business for offshore trust companies; if he does not, then it is likely to ensure that the existing corporate structures are maintained indefinitely.
Up until now, overseas investors buying property in the UK could avoid paying UK stamp duty if the property was owned by an offshore company, as they would simply acquire the shares in the company, with no need to change title to the underlying property. In an effort to stop this (which had been much trailed prior to the budget), the Chancellor has introduced a new 15pc rate of stamp duty, three times the previous level, for residential properties over £2 million bought by "certain non-natural persons". So it would appear that there will be a very large tax hit on the initial transfer of a property in to corporate ownership.
Given that the standard stamp duty rate for properties over £2 million was raised to 7% in this budget, then it is not impossible to conceive that it might still be worth putting properties into offshore companies if it was expected that they were likely to change hands a number of times, as the 7% tax each time a property is sold would be exchanged for a once-only 15% tax. Even if this is not the case, it would seem on the face of it that those properties which are already in offshore company structures would almost certainly remain there. But it appears that George Osborne will also try to address these points, as he has announced a consultation on applying an annual tax on the corporate vehicles owning properties, together with capital gains tax on the sale of shares in the vehicles.
It is not at all clear how he would achieve this - it is no simple matter trying to raise taxes on non-resident companies and individuals and it can be expected that having to have some form of annual valuation mechanism would be costly and cumbersome. But whether or not he does manage to do it is of significant importance to the offshore world - if he is successful, then it is likely to lead to a loss of business for offshore trust companies; if he does not, then it is likely to ensure that the existing corporate structures are maintained indefinitely.
But it is not all doom and gloom for the trust companies - it appears that the new regime applies only to residential properties, whereas a great deal of the real estate held offshore is commercial property. In addition, it is suggested that the new tax may only impact property held by companies, rather than in unit trusts or partnerships. So it would appear that significant areas of the offshore real estate holding business will continue as usual. For now, at least.
And he'll just push more and wealthy Brits out of Britain.....
ReplyDelete