New UK property rule 'may hit Mideast investors'

[AvoidDebt]

 

Quote

A new UK legislation, which comes into effect on April 6, is likely to impact thousands of non-UK domiciles in the Middle East who have invested in the British property market through an offshore corporate structure, said an expert.

For people in the region, the UK Property market has been a popular investment choice, especially London where growth continues to be strong. The average house price has risen over 65 per cent in London in the last 5 years, according to Old Mutual Wealth, a leading wealth management business in the UK.

A common way for people living in the Middle East to invest in the UK property market is through an overseas corporate structure or trust. This process is often referred to as ‘enveloping’, it stated.

Currently, non-UK domiciles who hold UK property through an overseas corporate structure will benefit from the investment being exempt from UK inheritance tax (IHT) on death, said the statement from Old Mutual Wealth.

With UK IHT at a rate of 40 per cent, these corporate structures have grown in popularity as investors look to take advantage of the favourable UK property market in a tax efficient way, it stated.

The new legislation will mean the UK tax authority (HMRC) will essentially be able to ‘see through’ these overseas corporate structures, making them ineffective from an IHT planning perspective.

As a result, anyone holding UK property through such a structure will have their estate be liable to UK IHT on the asset upon their death, and should seek professional advice on how best to meet this liability, said the property expert.

Wealthy individuals are often asset rich but cash poor, so taking steps to ensure liquidity upon death, such as setting up a life assurance policy in trust, could help beneficiaries meet the tax liability.

People holding these overseas corporate structures should also seek professional advice to review their next course of action, as without the tax advantages, these structures require careful consideration, it added.

"There appears to be little awareness among investors for this imminent change in legislation, and could result in beneficiaries being hit with an unexpected tax bill," remarked David Denton, the international technical sales manager, Old Mutual Wealth.

The new legislation essentially brings the IHT rules between UK domiciles (UK expats) and non-UK domiciles investing in UK property into line.

UK expats have never been able to invest in these offshore structures to avoid UK IHT, and have always been liable to UK IHT on their UK and worldwide assets on death, explained Denton.

Estate planning, he noted. is an important consideration for UK expats, who look to mitigate their IHT exposure and help ensure beneficiaries have liquidity to meet any tax bills on death.

According to him, this same level of estate planning is now necessary for non-UK domiciles investing in the UK property market through an offshore structure, as many may now need to plan for a future IHT liability for the first time, he added.

UK IHT is charged at 40 per cent, so it is important that investors take professional advice to ensure adequate provisions are in place and funds are available to their beneficiaries to pay any future IHT liability, he added.-TradeArabia News Service

 

[Society of fools]

There is actually more to these rule changes than is explained here.

It appears that April 7th, 2017 a Brit- who is domiciled in the United Kingdom for tax purposes- will keep that British domicile for six (6) years if he or she moves overseas.

And here's the kicker, this is even if the move overseas is intended to be a permanent move. So if somebody is emigrating from the United Kingdom to, say, Canada, or Australia, and moves with every intention of being a permanent emigrant, with a migration visa etc, and then unfortunately dies in his fifth year of residence in the new country, their beneficiaries will find that their worldwide assets will be claimed for inheritance tax by HMRC.

I would be very interested to see how this would work in practice. After all, a lot of people may leave the UK and really leave it, in the sense that they leave it emotionally and practically in their rear view mirror and sever all ties to the place, no visits, bank accounts, homes, interactions with British friends on Facebook or whatever. My father in Law was like that. He left Luton in the 70's and didn't go back for a subsequent visit to Britain until the 90's.

If somebody with such a mindset dies in a New Zealand mountain climbing accident 5 years down the track, how would the Brit authorities even hear about it ? Presumably the deceased, as a New Zealand Tax resident, would have to comply only with NZ tax law and his or her estate distributed to their beneficiaries in accordance with that law. How, even if the Brits found out about it subsequently, would they go about clawing that cash back ?

Its actually a step toward an American taxation system, extending the reach of the British tax net even when you've long left Blighty.

The implications of this are profound, and rather frightening. ( One remembers that another recent tax change by the Brits has been to did-allow private pension transfers out of the UK under QROPS without paying a very hefty fee). The direction of travel is pretty clear.

[Bear Hug]

8 hours ago, Society of fools said:

There is actually more to these rule changes than is explained here.

It appears that April 7th, 2017 a Brit- who is domiciled in the United Kingdom for tax purposes- will keep that British domicile for six (6) years if he or she moves overseas.

And here's the kicker, this is even if the move overseas is intended to be a permanent move. So if somebody is emigrating from the United Kingdom to, say, Canada, or Australia, and moves with every intention of being a permanent emigrant, with a migration visa etc, and then unfortunately dies in his fifth year of residence in the new country, their beneficiaries will find that their worldwide assets will be claimed for inheritance tax by HMRC.

I would be very interested to see how this would work in practice. ....

This is very interesting.  Does 6 year clock apply to pre-Apr17 movers?  There was a long discussion on CGT avoidance by hiding in Malta on poverty118 website. 

[Society of fools]

1 hour ago, Bear Hug said:

This is very interesting.  Does 6 year clock apply to pre-Apr17 movers?  There was a long discussion on CGT avoidance by hiding in Malta on poverty118 website. 

To my understanding, I think there is a four (4) year clock for moves before April 6th 2017, BUT, and its a big but, for such moves overseas before this year, if its a permanent move, and you or your estate can prove it, then you would lose your Brit domicile straight away from the date of departure in favour of your new domicile of choice.

So, all you had to do before was to leave the UK and leave it permanently to the satisfaction of HMRC, meaning you sever all ties to the place, take your family with you, empty your bank accounts, get off the electoral roll, shut down all your social club memberships, sell your house ( OR rent it out), and look like you're going to stay in your destination for ever.

From April 2017, that approach will not work, you can leave the UK without ever having the intention to set foot in Blighty again, and HMRC will still consider you a Brit for inheritance tax purposes for another 6 years.

I don't think the CGT situation has changed. They altered that a couple of years ago as I recall.

If there's a tax lawyer on here they can pick holes in my understanding, but that's the way I read the latest changes.

[EssKay]

14 hours ago, Society of fools said:

Its actually a step toward an American taxation system, extending the reach of the British tax net even when you've long left Blighty.

The implications of this are profound, and rather frightening. ( One remembers that another recent tax change by the Brits has been to did-allow private pension transfers out of the UK under QROPS without paying a very hefty fee). The direction of travel is pretty clear.

Contrast this with the direction of travel for corporation tax - which may well be slashed to 10% post Brexit.

 

If that happens, someone's got to keep paying the welfare bill and you better believe it isn't going to be the genuinely wealthy who are already non-doms or have the bulk of their assets sheltered in trusts / offshore tax havens.

Edited March 27, 2017 by EssKay

[Society of fools]

9 hours ago, EssKay said:

If that happens, someone's got to keep paying the welfare bill and you better believe it isn't going to be the genuinely wealthy who are already non-doms or have the bulk of their assets sheltered in trusts / offshore tax havens.

I suspect that you are right. I get the distinct feeling, watching the various legislative/regulatory/taxation measures being put in place in the UK in last 4 years or so and one gets the distinct impression that fiscally speaking, the United Kingdom is NOT going to make it very easy to move one's assets out of the government's taxation net, and, if one tries, one will at the very least have to pay a very hefty price, or pray to the Gods that one stays alive long enough( 6 years it seems) to allow one's heirs and beneficiaries to inherit the fruits of one's life's labours.

But while I can see the government's actions, I really wonder about the underlying intent.

Is this simply preparation for an as yet unheralded economic storm which will necessitate the forced and heavy taxation of British residents in order to safely sail the ship of state through it ? Or is it just heavy handed malice ? Or incompetence ?

[winkie]

On 25/03/2017 at 0:40 PM, fru-gal said:

About time. It is ridiculous that foreign investors who contribute nothing towards the country, suck money out and have made social problems so much worse by buying up so much housing stock have been exempt from paying taxes that people living here have to pay. The playing field needs to be evened and this is a step in the right direction.

It is the people that work and live here, those that pay their taxes here, start their businesses here, invest their time and work here that make the country what it is......the past and existing hard work of residents, building the infrastructure, creating the rule of law, the security, peace, honesty, integrity and tolerance that make the place what it is today....nobody would want to invest here if it were not for the hard work of those past and present that are now priced out of the places they and their families created.....for others to move in and take over, offering nothing much more than cash.

 

Edited March 27, 2017 by winkie

[Futuroid]

Good news globalists!

The Qataris still want to launder invest their money in UK property! Huzzah!
https://www.theguardian.com/politics/2017/mar/27/mays-global-britain-boost-as-qatar-investment

Oh, and in other news, they are selling off a rail franchise to the Chinese.
http://www.independent.co.uk/travel/news-and-advice/south-west-trains-london-waterloo-commuters-stagecoach-first-mtr-rmt-union-a7651571.html

Global Britain, working for yoohoo! 

[EssKay]

4 hours ago, Society of fools said:

I suspect that you are right. I get the distinct feeling, watching the various legislative/regulatory/taxation measures being put in place in the UK in last 4 years or so and one gets the distinct impression that fiscally speaking, the United Kingdom is NOT going to make it very easy to move one's assets out of the government's taxation net, and, if one tries, one will at the very least have to pay a very hefty price, or pray to the Gods that one stays alive long enough( 6 years it seems) to allow one's heirs and beneficiaries to inherit the fruits of one's life's labours.

But while I can see the government's actions, I really wonder about the underlying intent.

Is this simply preparation for an as yet unheralded economic storm which will necessitate the forced and heavy taxation of British residents in order to safely sail the ship of state through it ? Or is it just heavy handed malice ? Or incompetence ?

I don't think it's incompetence (it's too co-ordinated for that to be true), and I don't think it's malice either (remember, this is the treasury we're talking about - wall to wall bean counters).

 

Maybe I'm crediting them with too much intelligence but I actually think it's part of a coherent plan to shift taxation further away from corporations and onto the shoulders of individuals.

 

I think someone has had a cold hard look at how agile modern multinationals are in terms of gaming tax regimes and the complete lack of any co-ordinated global or regional will to rein them in (particularly in the face of Brexit), and they've thought f*** it - why fight it? - let's keep cutting corporation tax (hoping that will incentivise multinationals to stay / base themselves here) and make up the tax shortfall by milking individuals.

 

The unknown of course is what sort of trade deals we're going to have with the EU and rest of the world post Brexit, but if they're as bad as some people fear and the multinationals bail, you've still got the serfs locked in to soften the impact (I wouldn't be surprised if they went with a pension fund raid in that scenario - existential risk and all that).

 

 

[EssKay]

3 hours ago, Futuroid said:

Good news globalists!

The Qataris still want to launder invest their money in UK property! Huzzah!
https://www.theguardian.com/politics/2017/mar/27/mays-global-britain-boost-as-qatar-investment

Saw this on the news earlier. 

 

If the Qataris are doubling down, there are definitely loopholes that will allow sufficiently large investors to be protected

Edited March 27, 2017 by EssKay

[Society of fools]

5 hours ago, EssKay said:

(I wouldn't be surprised if they went with a pension fund raid in that scenario - existential risk and all that).

And you might very well be right. Argentina did just that back in 2001 in preference to a national default. ( They defaulted anyway eventually).

More recently, after leaving the Australian Superannuation System ( the private pension system down-under) essentially unchanged for decades, the federal government decided to put in some wide reaching reforms. The effect of them for most people was not huge, but the political/social impact has been massive.

The genie has effectively been let out of the bottle and this subject of altering Australian private pension conditions for the national good has now become a subject to be freely discussed by federal politicians as the solution to this and that fiscal problem. This undermines the confidence of people who might otherwise be perfectly confident saving into it.

[EssKay]

7 hours ago, hotairmail said:

I would get rid of taxes on profits in their entirety and replace with a "market access tax" of say, 1% of revenues.

(maybe that is exactly what 'BAT' will end up being like?)

 

Not sure that would be workable.

 

Companies are already very creative about how and where they book their revenues and would go even further down that road if you tried to tax revenues rather than profits (unless it was net neutral - in which case what's the point?)

 

It's far easier to keep coming up with new ways to squeeze individuals - extending the scope and rate of VAT for example