London property ownership moves offshore as Asian buyers move in

By Bridging Loan Directory -

 

Last year The Telegraph, citing research from Jones Lang La Salle, confidently predicted that buyers from Indonesia, Thailand, Taiwan and China would be the latest to target UK commercial and residential property deals and much of the evidence suggests they have been right according to Property Funds World.

The global financial crisis has certainly affected risk appetite, but safe havens such as London have continued to see an in-flow in prime property purchases by commercial and residential buyers from Asia, with a large percentage of buyers in the residential property market being made up of Asians who are attracted by the weak pound and rising rent opportunities.

The picture is a complex one and Asian, Chinese and international buyers may be investing as part of a business or simply buying apartments for their children to live in while they study in the UK with the intention of keeping the property as a long term investment for future purposes. With more and more Far Eastern and international buyers diversifying into the premium sector of the London and UK property market, the complexities of international taxation and ownership options mean this is now a growing opportunity for specialist offshore fiduciary companies.

The influx of new investors into the market has meant that many private and institutional buyers from overseas may often be unaware of the tax issues that arise when purchasing UK real estate. Moreover, many will not be familiar with the advantages of using structuring techniques available through offshore jurisdictions. The UK taxes residents on all income earned anywhere in the world and for those who are non UK resident for tax purposes, tax is still payable on income earned within the UK. Those classed as UK resident for tax purposes can be liable for a range of additional taxes from Inheritance through to Capital Gains on the sale of UK based assets. Stamp Duty Land Tax of up to 5% may also be payable on the purchase of a property.

The UK tax position can therefore be very complex, but for buyers from abroad, there are many solutions on offer which enable properties to be bought and held in offshore structures which present an opportunity to plan for taxation more effectively.

The choice of such structures is extensive and ranges from a holding company held in trust for an individual to a very private or public fund structure, which can be created for sophisticated and experienced investors.
The most common method used by non-resident non-UK domiciled individuals to hold property is via an offshore company, where the company is the owner of the property. For UK resident non-domiciled individuals the preferred method of owning property is by a company that is held in trust by a discretionary trust. The trust holds the property either directly or indirectly through an underlying offshore company.

For funds, one of the most popular investment vehicles is the Jersey property unit trust and the Jersey very private fund, both of which are only subject to the control of borrowing order (COBO) regime that applies to all incorporations on the Island. This scheme will allow up to 15 professional investors, usually with a minimum of GBP250,000 or currency equivalent.

With careful structuring it is it can be possible to mitigate capital gains tax and inheritance tax, although if the intention is to live in the property an individual can still be liable to income tax, as they may be deemed UK resident. However, if the intention is to buy a property for letting purposes, putting the asset into an offshore structure can assist in avoiding paying tax on any capital gain, if the property is sold on in the future at a profit.

Whether an investor is purchasing for residential or business purposes, for Asian and other property investors who are non UK resident for tax purposes, great care must be taken in the planning of any offshore structuring to ensure it is tailored to suit the longer term need of the purchaser. Jersey with its close proximity to the UK is an ideal offshore jurisdiction for such activity. The island is an internationally recognised, highly respected and an established trust, company and fund-structuring jurisdiction, with a strong finance industry populated by some of the world’s leading accounting, tax, legal and administration firms.

International trust and foundation specialists such as Vistra, who have 22 offices across 18 jurisdictions can play a vital role in this regard, setting up and running appropriate vehicle for international clients.