DoubleBubbleTrouble Posted June 19, 2006 Share Posted June 19, 2006 We have been alerted to the fact that foreign investors avoid captial gains tax selling UK residential property. This seems a very important issue, so we're currently researching it. Our initial take on this is that it can only encourage speculation on UK property. Given this is at a time when the UK's indigenous home buyers are saddled with high prices it seems to hard to understand why we should be encouraging property speculation from offshore. We'd be interested in hearing any information you have on it and thoughts as to the rights and wrongs of this... In particular if anyone has any experience of how this works we'd like to hear from you. Quote Link to comment Share on other sites More sharing options...
Charles_Darke Posted June 19, 2006 Share Posted June 19, 2006 I'm a tax consultant. I've made a post on the other place. Quote Link to comment Share on other sites More sharing options...
The Undertaker Posted June 19, 2006 Share Posted June 19, 2006 I'm a tax consultant. I've made a post on the other place. Which other place? Quote Link to comment Share on other sites More sharing options...
DoubleBubbleTrouble Posted June 19, 2006 Author Share Posted June 19, 2006 (edited) It's not really a problem with the overseas, It's just that in the UK we are taxed to death. My understanding is that foreign buyers from certain locations are completely exempt from CGT. Given that they are income taxed by the UK on rental profit but not on Capital Gain this seems like a recipe for encouraging foreign investors to indulge in short term speculation on property values driving up property costs for everyone. Wouldn't you agree? I'm sure there's an element of truth in that. But isn't the whole thing about overseas investors a bit overblown. The report a few weeks ago about how much of London was in foreign hands was about commercial property, and high end million pound plus houses. Not about normal residential and BTL stuff. I'm sure some of it is owned abroad, as it always has been, but I'm not convinced it's a major contributor to market forces. We've been hearing reports to the contrary... Good fortune in Hong Kong23 December 2005 King Sturge Residential achieves UK sales of almost £100 million Following a well-timed entry into the market in June 2005, King Sturge’s Hong Kong office has achieved sales of UK residential property worth almost £100 million during its first six months of operation, more than the competing agents Colliers CRE, FPDSavills and Knight Frank. ... http://www.kingsturge.co.uk/residential/ne...n-hong-kong.htm Isn't there a case that this is what is driving the house price indexes at the moment. Many local buyers decisions are influenced by the direction of these indexes so foreign investment ultimately could be support prices or worse still driving prices up. Edited June 19, 2006 by DoubleBubbleTrouble Quote Link to comment Share on other sites More sharing options...
Rachman Posted June 19, 2006 Share Posted June 19, 2006 the Inland Revenue sold its own offices to an offshore company and leased them back..... - it can't be a surprise to anyone......, surely ? Quote Link to comment Share on other sites More sharing options...
DoubleBubbleTrouble Posted June 19, 2006 Author Share Posted June 19, 2006 the Inland Revenue sold its own offices to an offshore company and leased them back..... - it can't be a surprise to anyone......, surely ? Seriously... do you have a link to any information on that? Quote Link to comment Share on other sites More sharing options...
Solvent Celt Posted June 19, 2006 Share Posted June 19, 2006 (edited) I'm not a tax expert but I believe you can avoid CGT by having the property bought and held in the name of a Ltd liability company (or it's off shore equivalent). Then when you sell the property you merely sell the shares. The property doesn't change hands at the LR as it is still owned by the company - it is the company which has changed hands. This wheeze is also used to get around death duties. Edited June 19, 2006 by Solvent Celt Quote Link to comment Share on other sites More sharing options...
Rachman Posted June 19, 2006 Share Posted June 19, 2006 (edited) Seriously... do you have a link to any information on that? Got it now - just had to remember the name "Mapeley) http://news.bbc.co.uk/2/hi/business/2263208.stm from the Beeb - it's fairly accurate reporting for a change. http://www.iht.com/articles/2006/05/23/business/reeurope.php Not got time to dig them all out - but gist is that sold off to an offshore company (cayman I think) - was to be UK but changed at last minute and government muppets fell for it. It's costing them millions each year.... Private Eye love this story - it comes back in there about every 6 months... Edited June 19, 2006 by Rachman Quote Link to comment Share on other sites More sharing options...
ReubenH Posted June 19, 2006 Share Posted June 19, 2006 Since you bring it up, it's worth mentioning that the Inland Revenue sold all its properties to an offshore company ... IN A TAX-HAVEN. Mapeley Steps in Bermuda, to be precise. Six hundred pieces of absolutely prime real estate sold for the knock-down price of £220 million, and when Mapeley eventually sell them on (they were most recently valued at £544 million) they won't have to pay a penny in tax. And how much does the Revenue pay to lease it's own buildings in the meantime? Well in 2004 alone they paid Mapeley £280m ... more than what they sold for in a single year! Only another 19 years to go... total cost of this 'deal' originally expected to be £1.5 billion, but will clearly end up being far higher. Quote Link to comment Share on other sites More sharing options...
Solvent Celt Posted June 19, 2006 Share Posted June 19, 2006 Since you bring it up, it's worth mentioning that the Inland Revenue sold all its properties to an offshore company ... IN A TAX-HAVEN. Mapeley Steps in Bermuda, to be precise. Six hundred pieces of absolutely prime real estate sold for the knock-down price of £220 million, and when Mapeley eventually sell them on (they were most recently valued at £544 million) they won't have to pay a penny in tax. And how much does the Revenue pay to lease it's own buildings in the meantime? Well in 2004 alone they paid Mapeley £280m ... more than what they sold for in a single year! Only another 19 years to go... total cost of this 'deal' originally expected to be £1.5 billion, but will clearly end up being far higher. FFS :angry: What was the rationale for this? Quote Link to comment Share on other sites More sharing options...
Rachman Posted June 19, 2006 Share Posted June 19, 2006 FFS :angry: What was the rationale for this? Officially, cost-effective, unofficially I have no doubt there are people on the boards of these companies who were in the public sector who made a lot of money since advising the government to sell, I presume that brown envelopes changed hands and large donations were made to political parties..... - it's as bent as hell - but it's government, do you expect them to tell us about their snouts in the trough. This started as their incompetence - i.e. having poor quality people negotiating the sale - as usual - and went downhill from there. Quote Link to comment Share on other sites More sharing options...
stillill Posted June 19, 2006 Share Posted June 19, 2006 Officially, cost-effective, unofficially I have no doubt there are people on the boards of these companies who were in the public sector who made a lot of money since advising the government to sell, I presume that brown envelopes changed hands and large donations were made to political parties..... - it's as bent as hell - but it's government, do you expect them to tell us about their snouts in the trough. This started as their incompetence - i.e. having poor quality people negotiating the sale - as usual - and went downhill from there. This is all very depressing. Thanks for the eye-opener, will have to get Private Eye more regularly (even though that depresses me further!) Quote Link to comment Share on other sites More sharing options...
Solvent Celt Posted June 19, 2006 Share Posted June 19, 2006 Officially, cost-effective, unofficially I have no doubt there are people on the boards of these companies who were in the public sector who made a lot of money since advising the government to sell, I presume that brown envelopes changed hands and large donations were made to political parties..... - it's as bent as hell - but it's government, do you expect them to tell us about their snouts in the trough. This started as their incompetence - i.e. having poor quality people negotiating the sale - as usual - and went downhill from there. Cost effective? Where are the savings? Quote Link to comment Share on other sites More sharing options...
Rachman Posted June 19, 2006 Share Posted June 19, 2006 Cost effective? Where are the savings? It was a public sector meeting, they probably had pie charts and everything. It was definitely there on the charts and the person presenting them almost certainly did not have a vested interest (honest).... Quote Link to comment Share on other sites More sharing options...
ReubenH Posted June 19, 2006 Share Posted June 19, 2006 This is all very depressing. Thanks for the eye-opener, will have to get Private Eye more regularly (even though that depresses me further!) Appalling as it is, the whole Mapeley affair is just one small piece of a far more horrifying picture. Private Eye is often alone in exposing such mind-boggling wastes of public money, so more power to them. If you want to be seriously depressed I suggest reading David Craig's latest work, "Plundering the Public Sector". Between 1997 and 2005 New Labour spent £10 billion on management consulting alone.... £10,000,000,000 just for advice - not including the costs of any actual projects! - with the same sum again committed to go the same way before their third term is up. But even that monstrous sum is dwarfed by the £50 billion being spent on IT projects. As a professional software developer, I know a thing or two about the design and implementation of software systems, and the fact those utter charlatans at Accenture, Andersen, et al keep screwing it up and are given a licence to print money for doing so, all makes me very angry indeed. Even more angry than I am about HPI & BTL, which is saying something! :angry: Quote Link to comment Share on other sites More sharing options...
Bear Goggles Posted June 19, 2006 Share Posted June 19, 2006 When Mapeley were bidding for this contract. I worked for a company that was doing some of their presentation material. Those of us that watched the presentation at the time thought that they were a bunch of chancers trying it on. They'd formed the company purely for the IR bid and as far as I'm aware they outsource everything and consist of just a few "managers". One of the guys from the company was actually heard to say something like "If we can pull this off it will be a licence to print money". We all thought that they didn't have a chance and the IR wouldn't be that stupid. Guess what? We were wrong! Nice work if you can get it! Quote Link to comment Share on other sites More sharing options...
Rachman Posted June 19, 2006 Share Posted June 19, 2006 When Mapeley were bidding for this contract. I worked for a company that was doing some of their presentation material. Those of us that watched the presentation at the time thought that they were a bunch of chancers trying it on. They'd formed the company purely for the IR bid and as far as I'm aware they outsource everything and consist of just a few "managers". One of the guys from the company was actually heard to say something like "If we can pull this off it will be a licence to print money". We all thought that they didn't have a chance and the IR wouldn't be that stupid. Guess what? We were wrong! Nice work if you can get it! Soros is not exactly a chancer. Having worked for him and his funds, I can tell you that they are much better run than most. It'll be a standard fund approach, offshore holding, hefty management fee, large carry on liquidation and run to keep it in losses - that's the model... the companies are always newcos for the bid - too messy to pick anything else. Quote Link to comment Share on other sites More sharing options...
Bear Goggles Posted June 19, 2006 Share Posted June 19, 2006 Soros is not exactly a chancer. Having worked for him and his funds, I can tell you that they are much better run than most. It'll be a standard fund approach, offshore holding, hefty management fee, large carry on liquidation and run to keep it in losses - that's the model... the companies are always newcos for the bid - too messy to pick anything else. Blimey! Soros was behind it. Well I didn't know that. I take it all back! (sort of) Quote Link to comment Share on other sites More sharing options...
Rachman Posted June 19, 2006 Share Posted June 19, 2006 Blimey! Soros was behind it. Well I didn't know that. I take it all back! (sort of) Him and Fortress, who are better known as the main Hedge Fund that financed the buyout of Man United..... Quote Link to comment Share on other sites More sharing options...
bpw Posted June 19, 2006 Share Posted June 19, 2006 So can someone explain to me what this really means. Let's say I live in the USA and that I set up a company which invests in a property in the UK. If I sell it I am liable to tax in the USA. Does this trick then only work for countries with no reciprocal tax agreement or low / no tax? Quote Link to comment Share on other sites More sharing options...
whiterabbit Posted June 19, 2006 Share Posted June 19, 2006 We have been alerted to the fact that foreign investors avoid captial gains tax selling UK residential property. This seems a very important issue, so we're currently researching it. Our initial take on this is that it can only encourage speculation on UK property. Given this is at a time when the UK's indigenous home buyers are saddled with high prices it seems to hard to understand why we should be encouraging property speculation from offshore. We'd be interested in hearing any information you have on it and thoughts as to the rights and wrongs of this... In particular if anyone has any experience of how this works we'd like to hear from you. I know many people at my company (expats and others) who have bought and sold in the UK and paid no CGT. Some have made massive amounts in SE1 for example. Our company bullien board has lots of flats for rent being offered to other employees and I am sure most are not paying tax on the income. I also know of a lot of UK residents who have done the same thing. To be honest unless you volenteer to pay I don't see how anyone would ever get caught this applies whether its a cash or mortgaged property. I tried to report someone for doing it a few months ago who had ripped of my dad and the Inland Revenue didn't want to know. Quote Link to comment Share on other sites More sharing options...
DoubleBubbleTrouble Posted June 19, 2006 Author Share Posted June 19, 2006 So can someone explain to me what this really means. Let's say I live in the USA and that I set up a company which invests in a property in the UK. If I sell it I am liable to tax in the USA. Does this trick then only work for countries with no reciprocal tax agreement or low / no tax? The long and short of CGT is only UK residents pay it. If you live elsewhere you are subject to whether your local tax authority charges a capital gains tax. Some area's, a few tax havens and also place's like Hong Kong, do not charge any CGT. So if you invest from there you are liable for UK income tax on your BTL income but not on any gain in price of the property. This makes your main focus not on a decent property rental return (since that is taxed) but instead you are much more likely to desire an escalation in price (since they are tax free). If you see what I mean. Quote Link to comment Share on other sites More sharing options...
whiterabbit Posted June 19, 2006 Share Posted June 19, 2006 The long and short of CGT is only UK residents pay it. If you live elsewhere you are subject to whether your local tax authority charges a capital gains tax. Some area's, a few tax havens and also place's like Hong Kong, do not charge any CGT. So if you invest from there you are liable for UK income tax on your BTL income but not on any gain in price of the property. This makes your main focus not on a decent property rental return (since that is taxed) but instead you are much more likely to desire an escalation in price (since they are tax free). If you see what I mean. Only UK residents pay it if they volenteer to do so, I don't know of a mechansim that checks that they actually do? There are many places that you can put as you place of abode to lower the CGT. This is why so many expenisve houses are owned by overseas corporations etc. Quote Link to comment Share on other sites More sharing options...
Rachman Posted June 19, 2006 Share Posted June 19, 2006 So can someone explain to me what this really means. Let's say I live in the USA and that I set up a company which invests in a property in the UK. If I sell it I am liable to tax in the USA. Does this trick then only work for countries with no reciprocal tax agreement or low / no tax? So you live in the USA, you set up a property owning vehicle with stock that is classed as debt in its jurisdiction of incorporation and equity for US purposes. You then make money tax free (it's a lot more complicate than that, but that's your starting point) - I should start with Cyprus or Luxembourg, then go out to Cayman for your holdco.... - google preferred equity certificates..... Quote Link to comment Share on other sites More sharing options...
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