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De-enveloping UK residential property

Does your UK structure still meet your needs?

16 Feb 2017

As from 6th April 2017 the rules changed and all UK residential property fell within the scope of UK inheritance tax (IHT).

Historically, a property may have been held by an offshore company which meant that it was not directly owned by an individual as what they actually owned was shares in an offshore company and therefore they did not have assets in the UK for IHT purposes. Such structures will be transparent for IHT from 6th April 2017 and this change has led many people to question whether these structures continue to be right for them.

When this change was announced it was suggested that there may be reliefs available as there may be considerable tax and other costs for unwinding the structures. It has been confirmed that there will be no such reliefs and therefore it is now a case of weighing up the costs of unwinding a structure against keeping it.

Each case needs to be looked at individually as there is no one solution which suits all and indeed there are often non tax reasons to have such a structure. This is just a brief reminder of the main tax points to be considered when reviewing de-enveloping although specific advice should be sought prior to any transfer taking place.

If the property has increased in value there are four potential ways a capital gains tax (CGT)charge could arise depending on the ownership:

Non resident CGT for gains post April 2015;

ATED related CGT if the property has been subject to the ATED charge;

Attribution of gains to a UK resident shareholder of an offshore company;

Attribution of the gains to a beneficiary of an offshore trust.

There are potential Stamp Duty Land Tax (SDLT) liabilities depending on how the transfer out of the company is effected and whether there is any debt.

There should not be any immediate IHT charge however depending on who will own the property going forwards may mean that if a trust owns it there will be 10 yearly charges and exit charges if it is subsequently transferred to a beneficiary.

Any corporate structure owning UK residential property should carry out a review to ensure this is most appropriate.

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